Markets buoyed by US data ahead of payrolls report

PAN PYLAS
August 1, 2013
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A woman walks by an electronic stock board of a securities firm in Tokyo, Thursday, Aug. 1, 2013. Asian markets rose Thursday after the U.S. Federal Reserve gave no indication it was preparing to wind down a massive bond-buying program that has propelled investors into stocks. (AP Photo/Koji Sasahara)

LONDON (AP) — Upbeat manufacturing figures out of the U.S. and China, the world's two largest economies, shored up markets Thursday ahead of key U.S. jobs data that could set the market tone for the next few weeks. The S&P 500 index in the U.S. broke through the 1,700 level for the first time.

Fairly dovish comments from European Central Bank President Mario Draghi after the bank kept its main interest rate unchanged also helped support markets ahead of potentially the most important event of an action-packed week — Friday's U.S. nonfarm payrolls data for July. Often, the U.S. payrolls numbers are the most important economic release of the month and have the ability to drive markets for a week or two.

Expectations for those payrolls numbers are high after a survey from the Institute for Supply Management added to the prevailing optimism over the U.S. economy. ISM said its main purchasing managers' index — a gauge of business sentiment — rose sharply to 55.4 points in July from 50.9 the previous month. A 19,000 fall in weekly jobless claims took the level to 326,000, its lowest since January 2008.

The fact that markets retained their positive tone after the figures may be a sign that investors are now focusing on the fundamental strengths of the economy rather than on when the Federal Reserve will start reducing its monetary stimulus. They also come hot on the heels of a better-than-expected 1.7 percent rise in the annualized pace of growth in the U.S. economy during the second quarter.

"The increased appetite for risk implies that markets are expecting tomorrow's U.S. payrolls number to at the very least meet consensus, so any failure to match up could give way to some profit-taking," said Brenda Kelly, senior market strategist at IG.

In Europe, the FTSE 100 index of leading British shares closed up 0.9 percent at 6,681.98 after the Bank of England opted against further monetary stimulus. The decision was widely anticipated and there was no statement explaining the decision to keep policy unchanged.

Germany's DAX rose 1.6 percent to 8,410.73 while the CAC-40 in France ended 1.3 percent higher at 4,042.73. European markets were supported by Draghi's comments that the expectations of rate hikes being priced in by money markets were not warranted and that the current benchmark rate of 0.5 percent did not represent the lowest level it could go — a hint that interest rates could be further reduced if the eurozone economy falters again.

In the U.S., the Dow Jones industrial average was up 0.8 percent at 15,619 while the broader S&P 500 index rose 1 percent to 1,702. The S&P 500 has never closed above 1,700, nor has it crossed that mark in intraday trading. Previously, its highest close was 1,695.52 on July 22.

The dollar's near-term fortunes could rest on the payrolls numbers, too. On Thursday, it was slightly stronger — the euro was 0.5 percent lower at $1.3229 while the dollar spiked 1.5 percent higher to 99.22 yen.

The yen was already weakening during Asian trading hours and that helped Japan's Nikkei 225 index, which has zigzagged all week, to close 2.5 percent higher at 14,005.77 — a lower yen makes the country's exports cheaper.

News that China's purchasing managers' index — a gauge of business sentiment — rose to 50.3 in July from June's 50.1 had helped shore up trading in Asian hours. The increase was unexpected as the consensus in the markets was for a modest decline below 50, the threshold between expansion and contraction.

Elsewhere in Asia, Hong Kong's Hang Seng advanced 0.9 percent to 22,088.79. The Shanghai Composite Index rose 1.8 percent to 2,029.07. South Korea's Kospi added 0.4 percent to 1,920.74.