FTSE clears the 6000 level as the year starts on an optimistic note
The UK’s FTSE 100 moved past the 6000 level for the first time since July 2011 on Wednesday.
The move was mirrored over on mainland Europe with Germany’s Dax climbing 1.95% and France’s Cac 40 adding 2%.
Boosting investor’s appetite for risk was the 11th hour agreement that saw the US avoiding the automatic introduction of potentially ruinous tax increases and spending cuts; otherwise known as the ‘fiscal cliff’.
Looking beyond the headlines there was also more optimistic news for investors in the UK to mull over both home and away.
The latest Markit/CIPS manufacturing Purchasing Managers’ Index (PMI) climbed to a 15-month high of 51.4 in December from 49.2 in November. A reading above 50 suggests that the sector is growing and contrasts with the many pessimistic forecasts of the UK returning to negative GDP growth in the final quarter of 2012.
Meanwhile there are also signs that China’s economy might be returning to the growth levels seen before the global recession. China’s official manufacturing PMI for December stood at 50.6 and follows HSBC’s release of its own manufacturing PMI last week which returned a 19-month high figure of 51.5.
Encouraging figures indeed but how long can the New Year optimism last?
The latest manufacturing PMI out from the eurozone suggests that activity in the sector is contracting; the figure came in at 46.1 in December after November’s 46.2. This will be taken as a signal that the recession in the eurozone is likely to deepen before it improves.
And back in the US, all eyes will now focus on its massive debt problem.
Indeed, the US reached its statutory debt limit of $16.394 trillion on December 31. The US has now entered what was described by US Treasury Secretary Tim Geithner as a ‘debt issuance suspension period’ which means that the Treasury will introduce ‘extraordinary measures’ to create $200 billion of temporary ‘headroom’ that will ensure that the US does not exceed the debt limit.
In short, the US will have to raise the debt ceiling on February 28th or risk defaulting on its financial obligations. And this means that the debate between Republicans and Democrats about spending cuts will continue.