European markets are set to start the final quarter on solid footing and but we still need a few more days of solid gains before we can settle that yesterday’s rebound was not a dead cat bounce. The sanguinity from Wall Street and Asian markets is playing an important role here, which has spurred the investor risk appetite despite not stellar economic numbers released over in Asia. The Japanese tankan quarterly survey confirmed that large manufacturers are still not very upbeat.
However, the main focus was towards the Chinese economic data which has shown some sign of life and despite some measures making new several years low, they were still better than the forecast. It is this factor which has made the investors more poised because the world’s second biggest economy is the major deal for traders along with the U.S. interest rate hike. If China starts showing some sign of strength and the PBOC remain accommodative and pat to take further actions, the fed will have one less reason to worry about. The Chinese manufacturing manager PMI index bounced back up and printed the reading of 49.8 which was much healthier to that of August when it came in at 49.7. Market forecast was for 49.6 and this is certainly an upbeat song for investors. More prominently, the Caixin/ Market PMI echoed the same and the data were better than the forecast. Although, the final reading was a new low during the past six and half year, but more focus is on the silver lining- the data were better than expectations. The reading came in at 47.2 and the forecast was for 47.
Given that we have two important readings beating forecasts, the Fed may feel a little respite and more focus will be towards the upcoming U.S. NFP data. It will be no surprise if the Fridays data shows more upbeat print like the ADP employment data, the Fed will have more support for their rate hike statement. Yes, the Chinese market was closed and did not get a chance to respond to this economic data, but we think coming Friday, the sentiment will very much build its foundation on this.
As for the economic docket, it has a number of events which will keep us entertained today. The manufacturing PMI data from Spain, Italy, France and Germany is due this morning. The forecast is for 53 for Spain, 53.4 for Italy and 52.5 for Germany. France is the one where the expectations are that the country may actually be able to beat the forecast of 50.4. As for the UK, the manufacturing PMI data forecast is for 51.3. Later in the day, we have the U.S. ISM manufacturing PMI data and the forecast is that this number will have a curse due to the weakness in other manufacturing readings. The forecast is 50.6