LSE: FTSE 100 index starts Q2 higher on US, China stimulus, Eurozone PMIs

Global equities, along with Britains headline index, edged higher at the start of Q2 amid renewed expectations for stimulus in China and dovish comments by Fed Chief Janet Yellen. Markets also drew support as manufacturing activity in the euro area expanded for a ninth straight month, with most of its leading economies posting better-than-expected performance.

Britains FTSE 100 index jumped by 0.45%, or 29.63 points, to 6 628.30 points by 8:47 GMT, having shifted in a daily range between 6 636.30 and 6 608.80 points. The blue-chip index fell by 0.26%, or 17.21 points, on Monday to settle at 6 598.37 points, marking a 2.2% decline during the first quarter.

Global equities drew support amid renewed stimulus hopes in China following another spite of overall downbeat data pointing to economic slowdown. Government figures showed early on Tuesday that manufacturing activity in China matched projections and inched up to 50.3 in March, up from 50.2 in February. However, the minor expansion did not do much to brighten the economy’s growth prospects after a recent pile of downbeat data points.

Meanwhile, a separate private report based on a smaller sample size showed that factory activity in China contracted for a third month. The HSBC China Manufacturing PMI fell to 48.0, compared to analysts’ expectations for a drop to 48.1 from February’s reading of 48.5.

The report showed that business conditions in China’s manufacturing sector worsened for a third straight month in March and market the worst performance since July. The contraction was attributed to a drop in new orders, although new business from abroad expanded for the first time in four months. Companies cut their headcount and purchasing activity and both input and output prices slid by the most since August 2012.

Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC commented on the report: “The final reading of the HSBC China Manufacturing PMI in March confirmed the weakness of domestic demand conditions. This implies that 1Q GDP growth is likely to have fallen below the annual growth target of 7.5%. We expect Beijing to fine-tune policy sooner rather than later to stabilise growth.”

The manufacturing figures added to previous weak data points which fueled speculations the Chinese government will step in to safeguard the country’s 7.5% annual growth target after recent signs of economic slowdown. Premier Li Keqiang reassured investors last week that Beijing was ready to safeguard its economic growth target and increase spending in infrastructure, which has the potential to lift prices of raw materials and boost the region’s stock market.

Equities also received a lift following dovish comments made by Federal Reserve Chair Janet Yellen. Yellen said yesterday at a conference in Chicago that the central bank needed to do more to fight against unemployment, because keeping interest rates near zero for more than five years and swelling its balance sheet with asset purchases seemed not to be enough. She also added that the US economy still needed monetary stimulus for “some time” and that most of the Fed officials shared the same opinion.

Market players awaited the release of US non-farm payrolls later in the week, as well as manufacturing activity and factory orders data. Eyes will be pointed at ECBs policy meeting on Thursday as well, with some analysts expecting further policy easing within the single currency bloc in order to battle possible deflation.

Data on Tuesday showed that manufacturing activity in the Eurozone expanded for a ninth consecutive month in March, matching expectations for growth to remain flat at 53.0. Germanys manufacturing Purchasing Managers Index registered at 53.7, compared to projections to remain unchanged at 53.8 from a month earlier, while France marked an improvement to 52.1 from 51.9 in February. Spain and Italy also posted better-than-expected readings.

In the U.K., the Markit/CIPS manufacturing PMI slid to 55.3 in March, the lowest since August, defying analysts projections for a jump to 56.7 from Februarys downward revised reading of 56.2.

Gainers, losers

FTSE 100s top three gainers for the day were Aberdeen Asset Management Plc, Babcock International Group Plc and ARM Holdings Plc.

Aberdeen Asset Management rose by 4.73%, or 18.45 pence, to 408.75 pence by 8:35 GMT after it announced it had completed the acquisition of Scottish Widows Investment Partnership Group and its related private equity fund management business from Lloyds Banking Group.

Babcock International Group jumped by 3.49%, or 47.00 pence, to 1 394.00 pence by 8:39 GMT after the London Fire Brigade named the engineer contractor as the preferred bidder on a 21-year contract to manage its fleet.

ARM Holdings rose by 2.86%, or 28.50 pence, to 1 026.50 pence.

Meanwhile, BHP Billiton Ltd gained 2.58%, or 47.50 pence, to 1 891.50 pence after announcing it was looking for ways to maximize value for shareholders by simplifying its operations in order to focus on copper, coal, iron ore and petroleum.

FTSE 100s top three losers for the day were Pearson Plc, Diageo Plc and J Sainsbury Plc.

Pearson declined by 2.73%, or 29.00 pence, to 1 034.00 pence by 8:44 GMT, while Diageo lost 1.45%, or 27.00 pence, to 1 834.00 pence. J Sainsbury Plc slid 1.20%, or 3.80 pence, to trade at 312.30 pence.