Global equity markets are incredibly strong this morning, as broader U.S. indices are breaking out of a three-week range with the S&P 500 crossing above 1,700 for the first time ever. We had some very encouraging economic data prints this morning, including a blowout ISM manufacturing number just moments ago.
Yesterday’s FOMC statement did not signal any official policy change, but it did note persistently low inflation as a concern, which some analysts interpreted as a dovish signal. Some are holding out for more clarity from tomorrow’s non-farm payroll data, however, today’s strong PMI and ISM data certainly make a September Fed “taper” seem more likely. The bond markets are acting accordingly with treasures selling off, and the 10-yield yield creeping back to near 2.7% (currently at 2.67%, +10 bps).
Areas of Focus Today:
Encouraging Global PMI Data – Better-than-expected PMI data from China and Europe helped kick things off this morning. Within the details, however, the official government PMI rose over 50 in China (which caters to large companies) but the PMI as measured by HSBC (which caters to medium and smaller companies) fell to its weakest reading since August 2012. Markit’s UK manufacturing PMI jumped to 54.6 in July from 52.9 in June, trumping even the most optimistic forecasts, triggering a rise in sterling. Markit’s Eurozone manufacturing PMI signaled marginal growth among factories for the first time in two years, also rising to 50.3 in July from 48.8.
ECB Remains Accommodative – European Central Bank President Mario Draghi said that recent economic indicators signal that the euro region is through the worst and reiterated that officials plan to keep interest rates low for the foreseeable future.
ISM Index Leaps To Nearly 2-Year Peak – The Institute for Supply Management said its July manufacturing index surged to a reading of 55.4% vs. 50.9% in June. That’s the highest level since August 2011. Economists expected a reading of 52.0%. The new-orders component rose 6.4 points to 58.3%, the production index jumped 11.6 points to a nine-year high of 65%, and the employment index leaped 5.7 points to 54.4%. Any reading over 50% indicates expansion.
Corporate Earnings – Some 40 companies in the S&P 500 report results today. Of the 373 companies in the gauge to have already reported quarterly results, 73% have exceeded analysts’ profit estimates and 56% have beaten sales projections, according to Bloomberg.