Markets staged decent gains yesterday as manufacturing numbers across the board showed encouraging signs that all is not lost in the industrial sectors around the world. 

It was the strength of manufacturing in the emerging economies that really got the bulls excited where India’s number hit an eight month high and China posted a decent gain.  Even in Europe Germany and the UK saw manufacturing numbers that surprised to the upside and this overshadowed worse than expected employment numbers from the US to push the likes of the Dax to new highs for the year and the FTSE a step closer to its 2012 highs.

Whilst manufacturing in the UK only makes up some ten percent of the economy, in the emerging economies it is a much bigger component and these are the ones that count as far as global growth is concerned.  The West is heavily reliant on the power houses of India and China to buy what little we export to them and they in turn are reliant on us buying the goods that they make as well.  There’s always a flip side to any good piece of data though, and for the likes of the UK and Germany the question is whether this up-tick in manufacturing data can actually turn into new jobs.  Confidence about growth in 2012 is still pretty anaemic and so whether this jump can be sustainable or not is another question altogether.

This morning the strength from yesterday is following into today and the FTSE is now knocking on the door of its 2012 highs.  At the time of writing the index is on the figure at 5800 just in positive territory and being assisted by merger and acquisition news from the mining sector as coal giant Xstrata has announced that it is looking to merge with Glencore.  Now that Xstrata’s share price has finally opened it is over 10% higher in the mid £12 range and Glencore is over 3% on the side of the angels so it’s hard to see this being a merger of equals as their PR divisions are currently spinning.

Clients have been caught on the wrong side of just about everything apart from gold in the recent move higher as they are short most rallying markets whether that be the FTSE, the S & P, the euro or even some of the soft commodities.  Many people remain convinced that the strength seen in risk assets so far this year is going to be short lived but slowly and surely the bears seem to be becoming the minority.

The strength in equity markets and general increase in risk appetite gave a boost to the euro which didn’t make many clients particularly happy as they have been opposing the recent EUR/USD rally.  This morning the single currency is at 1.3150 against the greenback knocking on the door of a seven week high.  The move higher since the middle of January has taken EUR/USD back above its 55 day moving average on the daily chart so the momentum seems to remain on the side of the bulls indicating that there may still be more pain for the bears ahead.  Support and resistance is seen at 1.3045/20 and 1.3230/55 respectively.

Gold was pretty much flat on the day and couldn’t quite take on the 1750 level.  This is just about the only one of the most popularly traded markets that clients are actually long of and so they are hoping for further strength towards 1750 and beyond.  If the risk appetite sustains itself then we could see continued strength in gold as the bulls take on resistance seen at 1760 and 1775.

Brent was also in demand yesterday in line with the equity market rally and the black gold continues to be well supported by geopolitical tensions between Iran and the West.  The improvement in manufacturing data across the board also kept the commodity in demand.  This morning Brent is at 112.20 and support and resistance is seen at 111.00 and 112.80 respectively.