Market update: Could US payrolls data drive equities higher? – 02.08.2013

Source: Henderson Global Investors

US equities rose strongly yesterday, the S&P 500 (+1.3%) and the Dow Jones (+0.8%) indices reaching record closing highs. US manufacturing grew at its fastest pace in more than two years, the Institute for Supply Management’s factory index surging to 55.4 in July (>50 signifies expansion). Corporate earnings results from Pioneer Natural Resources, Yelp, and LinkedIn provided further support. Also welcome was news from overseas – eurozone manufacturing had returned to growth, rising to a two-year high of 50.3 in July, while British factories showed they were in rude health, the Markit/CIPs purchasing managers’ index climbing to 54.6, its strongest level since March 2011. In policy news, the European Central Bank (ECB) and Bank of England maintained their accommodative stances.

This morning, European indices are edging higher (FTSE Eurofirst 300 +0.4%; FTSE 100 +0.02%) led by insurers. AXA and Allianz are among the top gainers after their results pleased investors. All eyes will be on the US this afternoon, when the latest non-farms payrolls data will be announced. Strong job creation might raise the chances of the US Federal Reserve tapering its asset purchases soon. That said, investors are becoming more comfortable that the US economy is strengthening, so a positive jobs surprise may actually boost equity markets further.