European Stocks edge higher after Manufacturing Data
European stocks rose on Monday, recovering from one of the worst weeks in months, supported by robust manufacturing data across the region.
Having opened the session lower, Germany’s DAX 30 DAX, +1.44% and France’s CAC 40 PX1, +0.70% were trading 1.4% and 1.1% higher by early afternoon, helping the Stoxx Europe 600 SXXP, +0.55% to a 0.7% gain, after figures showed that the eurozone’s manufacturing sector expanded again in April.
Data firm Markit, which surveys more than 3,000 manufacturers across the eurozone, said that its purchasing managers index was at 52.0 for the month, down from 52.2 in March, but still higher than the 51.9 figure previously estimated by Markit.
A reading below 50.0 indicates business activity is declining, while a reading above that level implies it is increasing.
The FTSE 100 UKX, +0.36% is closed Monday for a bank holiday.
Last week, most major indexes in Europe fell more than 4% as investors abruptly distanced themselves from some of the most successful trades so far this year, fearful that the rally in stocks, bonds and the U.S. dollar may have become dangerously overdone.
The shift also saw German government bonds, or Bunds — buoyed by ferocious demand throughout the first four months of the year — tumble.
On Monday, the yield on the 10-year Bund TMBMKDE-10Y, +6.21% remained pinned at around 0.37%. Bond prices fall as yield prices rise and less than two weeks ago the 10-year Bund yield hit an all-time low of 0.05%, spurring predictions of zero or even negative yields on the benchmark for European credit markets.
“To our minds, the shift that began last week marks a new crossroad on liquidity and fundamentals and things can no longer remain the same,” Michala Marcussen, chief economist at Société Générale, said.
Barclays economist Philippe Gudin, however, cautioned that it is too early to conclude that this is the start of a big and sustained rise in bond yields in the euro area.
“We are more inclined to interpret it as a healthy positioning or liquidity-led correction for now,” he said.
In currency markets Monday, the euro EURUSD, -0.38% which early Friday had climbed to a two-month high against the U.S. dollar, was trading around 0.3% lower on the day at around $1.116.
Like European stocks and government bonds, the dollar surged during the first part of 2015, rising to its highest level against the euro since 2003, also as a result of the European Central Bank’s €60 billion a month bond-buying stimulus pressuring the euro.
But that trend has also slowed in recent weeks and has in the last few days has even showed signs of reversing.
Roelof-Jan van den Akker, a technical strategist at ING, said that like the recent moves in bond and stock markets, this could mark the start of a “larger consolidation phase” but like in the other asset classes, not everyone agrees.
Currency strategists at BNP Paribas said that the dollar’s decline in recent days has created a fresh buying opportunity for some.
“We expect [euro] sellers to return now that positioning is more balanced,” they wrote in a note.
In commodity markets, Brent crude LCOM5, -0.24% added 0.7% on the day to $66.92 per barrel, while gold GCM5, +1.38% rose 0.5% to $1,181 a troy ounce.
Source: MarketWatch
