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London open: Stocks rally on hopes of China stimulus after weak PMIs
London stocks rallied on Thursday after weak Chinese manufacturing data spurred hopes of further stimulus. The government’s official purchasing managers’ index on China manufacturing rose unexpectedly to 49.8 in September from 49.7 August. However, it remained under the 50 level that separates contraction from expansion.
Separately, a private survey by Caixin/Markit revealed a drop in PMI manufacturing in September to 47.2 from 47.3 a month earlier. September’s reading marked an upward revision from the initial estimate of 47, which analysts expected to remain unchanged.
Meanwhile, the official services PMI remained at 53.4 in September while the Caixin/Markit services PMI fell to 50.5 last month from 51.5 in August.
“These numbers still paint a picture of an economy where the recent easing measures do not appear to showing any evidence of a trickledown effect in the hard data, raising the prospect of further measures in the coming weeks,” said Michael Hewson, chief market analyst at CMC Markets.
Manufacturing reports on the UK and the US are also due on Thursday.
Markit’s UK manufacturing PMI at 0930 BST is forecast to fall to 51.3 in September from 51.5 a month earlier.
Markit’s US manufacturing PMI at 1445 BST is expected to be confirmed at 53 in September. ISM’s US manufacturing index is projected to drop to 50.6 in September from 51.1 in August.
The US agenda will also include the release of weekly jobless claims and construction spending figures at 1330 BST and 1500 BST respectively.
Federal Reserve official John Williams, who has called for an interest rate hike this year, will speak after close of trading in Salt Lake City. Williams on Monday signalled that the Fed should not wait much longer to raise rates. The Fed meets in October and December.
“When you have a high-pressure economy, with unsustainably high levels of economic activity for a long period of time, people may make decisions based on excessive optimism, rather than sound economic basics,” Williams warned. “One lesson I have taken from past episodes is that once the imbalances have grown large, the options to deal with them are limited.”
In company news, Johnson Matthey jumped after completing the sale of its Alfa Aesar Research Chemicals business to Thermo Fisher Scientific for £256m in cash.
Tullow Oil rallied after saying its lending banks have completed the routine six-monthly reserve-based lend redetermination process and available debt capacity remains unchanged at $3.7bn.
Glencore gained for a third day after its shares plunged on Monday, as the company reassured credit investors that its financing was strong.
