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Major US stock indexes have risen significantly, as strong data on manufacturing activity from the US and China weakened concerns about a possible slowdown in the global economy.

A report published by the Institute for Supply Management (ISM) showed that in March, activity in the US manufacturing sector increased markedly, rebounding from its lowest level since the end of 2016, noted in February. According to the report, the PMI index for the manufacturing sector rose in March to 55.3 points from 54.2 points in February. Analysts had expected the figure to rise to 54.5 points.

In the meantime, markets ignored US retail sales data, which showed an unexpected decline in February after solid growth in January. According to a report by the Ministry of Commerce, retail sales fell by 0.2% in February, as households reduced purchases of furniture, clothing, food and electronics, household goods, as well as building materials and garden tools. January data was revised up to show a 0.7% increase in retail sales instead of a 0.2% increase, as previously reported. Economists had forecast a growth of 0.3%.

Additional market support was also provided by fresh signals on progress in the US-China trade negotiations. The State Commission of China on customs tariffs decided on Sunday to extend the suspension of the decision on the collection of additional customs duties on cars and components from the United States after April 1 as a sign of goodwill after the US decision to postpone the increase in tariffs on Chinese imports.

Most of the components of DOW finished trading in positive territory (23 of 30). The growth leader was Caterpillar Inc. (CAT, + 3.28%). McDonald's Corporation (MCD; -0.83%) was an outsider.

Almost all sectors of the S & P recorded an increase. The exception is the utility sector (-0.6%). The largest growth was shown by the industrial goods sector (+ 1.7%).

At the time of closing:

Dow 26,258.35 +329.67 +1.27%

S & P 500 2,867.18 +32.78 +1.16%

Nasdaq 100 7,828.91 +99.59 +1.29%

The Commerce Department said on Monday construction spending increased 1.0 percent to a nine-month high after an upwardly revised 2.5 percent climb in January (originally a 1.3 percent m-o-m surge).

Economists had forecast construction spending declining 0.3 percent m-o-m in February.

On a y-o-y basis, construction spending rose 1.1 percent in February.

According to the report, investment in public construction surged 3.6 percent m-o-m, led by federal government construction projects and state and local government construction outlays. Meanwhile, spending on private construction rose 0.2 percent m-o-m, as an increase in spending on private residential projects more than offset a drop in spending on private nonresidential structures.

The Commerce Department reported on Monday that business inventories rose 0.8 percent m-o-m in January 2019, matching an upwardly revised increase in December 2018 (originally a gain of 0.6 percent m-o-m). 

That was above economists’ forecast for a 0.4 percent m-o-m advance. 

According to the report, wholesale (+1.2 percent m-o-m), retail (+0.8 percent m-o-m) and manufacturing (+0.5 percent m-o-m) inventories all rose in January.

A report from the Institute for Supply Management (ISM) showed the U.S. manufacturing sector expanded in March at a faster pace than in February. 

The ISM's index of manufacturing activity came in at 55.3 percent last month, up 1.1 percentage points from the February reading of 54.2 percent, exceeding economists' forecast for a 54.5 percent reading.

A reading above 50 percent indicates expansion, while a reading below 50 percent indicates contraction. 

The monthly gain by the headline index was primarily attributable to faster increases new orders (+1.9 percentage points m-o-m to 57.4 percent in March), production (+1.0 percentage point to 55.8 percent) and employment (+5.2 percentage points to 57.5 percent) indicators. Meanwhile, supplier deliveries index (-0.7 percentage point to 54.2 percent) and the inventories index (-1.6 percentage points to 51.8 percent) recorded decreases.

Timothy R. Fiore, Chair of the ISM Manufacturing Business Survey Committee said, “The past relationship between the PMI and the overall economy indicates that the PMI for March (55.3 percent) corresponds to a 3.7-percent increase in real gross domestic product (GDP) on an annualized basis.”

The latest report by IHS Markit revealed on Monday the seasonally adjusted IHS Markit final U.S. Manufacturing Purchasing Managers’ Index(PMI) fell to 52.4 in March, down from 53.0 in February, and broadly in line with the “flash” figure of 52.5. 

The reading pointed to slowest growth in factory activity since June 2017 and was notably softer than the trend seen for 2018.

Economists had forecast the index to stay unrevised at 52.5.

According to the report, softer increases in output and new orders were the key factor behind the lower headline figure. 

The latest survey released by IHS Markit revealed another slowdown in manufacturing activity growth during March, with overall business conditions improving at the weakest rate for two-and-a-half years.

The headline seasonally adjusted IHS Markit Canada Manufacturing Purchasing Managers’ Index (PMI) fell to 50.5 in March, down from 52.6 in February. The reading signaled the slowest upturn in operating conditions across the manufacturing sector since September 2016.

According to the report, weaker production growth was a key factor behind the drop in the headline PMI during March. Output volumes rose at the slowest pace for almost two-and-a-half years due to fragile customer demand, especially from export markets.

March data also pointed to a fractional decrease in new orders received by manufacturing firms, which ended a 29-month period of sustained expansion, as well as only marginal growth of the rate of employment, the weakest for almost two-and-a-half years.

U.S. stock-index rose on Monday amid upbeat manufacturing data out of China and further hints of progress in U.S.-China trade talks.

Global Stocks:

(company / ticker / price / change ($/%) / volume)

Chevron (CVX) initiated with an Overweight at Morgan Stanley; target $146

Exxon Mobil (XOM) initiated with an Equal-Weight at Morgan Stanley; target $84

FedEx (FDX) downgraded to Hold from Buy at Berenberg; target lowered to $200

The Commerce Department announced on Monday the sales at U.S. retailers fell 0.2 percent m-o-m in February, following a revised 0.7 percent m-o-m gain in January (originally an increase of 0.2 percent m-o-m), as households reduced purchases of furniture, clothing, food and electronics and appliances, as well as building materials and gardening equipment.

Economists had expected total sales would increase 0.3 percent m-o-m in February. 

Excluding auto, retail sales decreased 0.4 percent m-o-m in February after a revised 1.4 percent m-o-m climb in the previous month (originally a rise of 0.9 percent m-o-m), missing economists’ forecast for a 0.4 percent m-o-m advance. 

Meanwhile, closely watched core retail sales, which exclude automobiles, gasoline, building materials and food services, and are used in GDP calculations, fell 0.2 percent m-o-m in February after an upwardly revised 1.7 percent m-o-m surge in January (originally a 1.1 percent m-o-m jump). 

In y-o-y terms, the U.S. retail sales rose 2.2 percent in February, decelerating from 2.3 percent the previous month.

• Sees Italy’s budget deficit to rise to 3.0 percent of GDP in 2020
• Sees Italy’s GDP falling 0.2 percent in 2019 before expanding 0.5 percent in 2020
• Sees Italy’s public debt to hit a record 133.8 percent of GDP this year and climb to 134.8 percent in 2020

ITV's political correspondent, Paul Brand, wrote on Twitter that "MPs backing People's Vote motion tonight feel like there's been concrete movement in their direction over weekend, but admit there may be no majority for anything. Again." 

• Believes central bank is in the right place
• Says some of the risks have shifted to the downside
• Thinks "economic weakness has caused the rest of the committee to say it’s an appropriate time to pause"
• Thinks that "pausing to get more information, to see if this really is an economic slowdown or if it’s just a blip" is "the right move"
• Says inflation data "is not going the right way"
• Should take the signal of yield curve inversion seriously, shouldn't be ignored

• Government has no plans to prorogue parliament
• PM continues to think there is a majority for leaving with a deal
• Says that May's deal is the best one available
• Reiterates that May has previously said a customs union would mean the UK wouldn't have an independent trade policy
• General election and the second Brexit referendum are not in national interest

Bert Colijn, senior economist at ING, said that the Eurozone’s inflation dropped slightly from 1.5 percent to 1.4 percent in March, with core inflation falling to 0.8 percent as the timing of Easter continues to distort inflation in the spring months.

He notes that “although a detailed breakdown isn't available yet, package holidays inflation is likely to have negatively impacted this release as 2018 Easter holiday started in March. The decline in services inflation from 1.4 percent to 1.1 percent certainly suggests this has had a considerable impact.”

Colijn also added that “next month will likely see some overshooting of 1 percent due to the Easter effect reversing, but the underlying story remains one of subdued core inflation as businesses continue to take higher wage growth in their margins because of global uncertainty.”

At the same time, “headline inflation dropped less than the core and stands at 1.4 percent as fuel prices have rebounded over recent weeks”, he said.

ING economist also suggested that “a drop to 1 percent is possible, meaning that the rate is likely to move away from the ECB target over the coming months before moving closer again.”

Goldman Sachs' (GS) economists said on Monday their estimates revealed that the UK's economy has lost nearly 2.5 percent of GDP relative to its growth path prior to the mid-2016 referendum on exiting the European Union (EU), and has lagged other advanced economies as uncertainty dents investment.

"Politicians in the UK are still struggling to deliver on that vote," Goldman Sachs' economists wrote in a note to clients. "The resulting uncertainty over the future political and economic relationship with the EU has had real costs for the UK economy, which have spilled over to other economies," they added.

The U.S. bank's economists also noted that Brexit uncertainty has been a major driver of economic output losses as they are concentrated in investment.

"Uncertainty shocks weighed on investment growth in the immediate aftermath of the Brexit vote, as well as more recently amid the renewed intensification of Brexit uncertainty," they wrote.

In addition, their model finds the Brexit cost stood at around 600 million pounds per week since the referendum.

In a no-deal Brexit, a scenario Goldman's economists see a 15-percent probability of, the UK would see large output losses with a "substantial" global confidence shock marked by sharp sterling depreciation.

Karen Jones, analyst at Commerzbank, explains that the GBP/USD pair has eroded the 3 month uptrend at 1.3065 in the past week, but continues to hold the 200 day ma at 1.2977, which has neutralised their immediate outlook.

“While we would allow for a rebound from the 200 day ma, it should be noted that downside risks are growing and intraday rallies are likely to struggle 1.3085/1.3165. However below the 200 day ma lies the 1.2929 55 day ma and the double Fibo retracement at 1.2900/1.2895. This guards the recent low at 1.2772. The market recently reached 1.3382 before failing. Should the 55 week ma hold, our overall target remains the 1.3552 200 week ma.”

Germany's VDMA engineering association halved its output growth forecast for this year to 1%, citing unresolved trade conflicts and a slowing world economy.

"Disputes about tariffs and other trade restrictions are unsettling market participants and dampening the industry's sentiment", VDMA said.

VDMA also cited a slowing world economy as a risk. It said the positive impact of pro-business tax reforms in the US was petering out and growth in China is expected to soften.

According to a flash estimate from Eurostat, euro area annual inflation is expected to be 1.4% in March 2019, down from 1.5% in February. Economists had expected a 1.5% increase.

Looking at the main components of euro area inflation, energy is expected to have the highest annual rate in March (5.3%, compared with 3.6% in February), followed by food, alcohol & tobacco (1.8%, compared with 2.3% in February), services (1.1%, compared with 1.4% in February) and non-energy industrial goods (0.2%, compared with 0.4% in February)

A separate report from from Eurostat showed, the euro area (EA19) seasonally-adjusted unemployment rate was 7.8% in February 2019, stable compared with January 2019 and down from 8.5% in February 2018. This remains the lowest rate recorded in the euro area since October 2008. The EU28 unemployment rate was 6.5% in February 2019, stable compared with January 2019 and down from 7.1% in February 2018. This remains the lowest rate recorded in the EU28 since the start of the EU monthly unemployment series in January 2000.

Eurostat estimates that 16.012 million men and women in the EU28, of whom 12.730 million in the euro area, were unemployed in February 2019. Compared with January 2019, the number of persons unemployed decreased by 102 000 in the EU28 and by 77 000 in the euro area. Compared with February 2018, unemployment fell by 1.469 million in the EU28 and by 1.169 million in the euro area.

IHS Markit said, the impact of Brexit preparations remained a prominent feature at manufacturers in March. Efforts to build safety stocks led to survey-record increases in inventories of both purchases and finished products. Trends in output and employment also strengthened as stockpiling operations at clients led to improved inflows of new work.

The headline seasonally adjusted IHS Markit/CIPS PMI rose to a 13-month high of 55.1 in March, up from a revised reading of 52.1 in February (originally reported as 52.0). The PMI has remained above the 50.0 benchmark for 32 months in a row.

The trend in manufacturing output improved in March. Companies stepped up production to build-up inventories in advance of Brexit and also meet rising inflows of new work (mainly reflecting stockpiling at clients). New business improved from both domestic and export markets. This had a positive impact on staff hiring, with jobs growth recorded following back-to-back reductions at the start of the year. The rate of increase in stocks of purchases hit a survey record high for the third month running in March.

According to the report from IHS Markit, manufacturing operating conditions in the eurozone deteriorated in March to the greatest degree for nearly six years.

After accounting for seasonal factors, the IHS Markit Eurozone Manufacturing PMI posted a level of 47.5, down from 49.3 in February and its lowest level since April 2013. March marked a second successive month that the PMI has posted below the 50.0 no-change mark. The PMI has been on a broadly downward trajectory since reaching a series record high at the end of 2017 and, in March, weakness was primarily centred on the intermediate and investment goods sectors. Both categories registered notable deteriorations in operating conditions which was in stark contrast to consumer goods, where further growth (albeit modest) was recorded.

Looking at the latest data by country, the region’s three biggest economies all recorded sub-50.0 PMI readings during March. The overall downturn was led by Germany, where operating conditions deteriorated to the greatest degree in over six-and-ahalf years. Italy fared little better, with its PMI at a near six-year low. France returned to contraction, having recorded modest growth in the preceding survey period. In contrast, Greece saw its manufacturing sector enjoy its best month of growth in a year and thereby buck the wider regional trend.

• worst thing could do is have no Brexit at all

• Cabinet determined to make sure UK leaves EU

• we are well prepared for no deal

• we are seeing people coming on board with PM May’s plan after lost by fewer votes last week

• custom union idea is incredibly problematic

• answer lies in modification to PM May’s deal

According to analysts at Danske Bank, today is a very busy day in terms of economic data releases as this morning PMI manufacturing indices for many European countries are due out.

“In the euro area, we get unemployment data for February and preliminary HICP inflation at 11:00 CEST. Although we still expect core inflation to climb higher in 2019, we expect the March core inflation print to remain at 1.0% y/y, as the Easter effect will exert downward pressure on service price inflation. For headline inflation we see scope for a rise to 1.7% y/y, driven by increasing energy prices. In the US, there are plenty of data releases as well. At 14:30 CEST, retail sales are due out, which will be interesting given the weakness in recent months. We expect core retail sales rose +0.5% m/m in February. At 16:00, ISM manufacturing for March is due out, which, given the regional PMIs, may increase marginally.”

According to the report from Federal Statistical Office (FSO), turnover in the retail sector fell by 0.2% in nominal terms in February 2019 compared with the previous year. Seasonally adjusted, nominal turnover rose by 0.2% compared with the previous month.

Real turnover in the retail sector also adjusted for sales days and holidays fell by 0.2% in February 2019 compared with the previous year. Real growth takes inflation into consideration. Compared with the previous month, real, seasonally adjusted retail trade turnover registered an increase of 0.3%.

Adjusted for sales days and holidays, the retail sector excluding service stations showed a 0.1% decrease in nominal turnover in February 2019 compared with February 2018 (in real terms –0.2%). Retail sales of food, drinks and tobacco registered an increase in nominal turnover of 0.8% (in real terms –0.5%), whereas the non-food sector registered a nominal negative of 1.1% (in real terms –0.5%).

Global growth fears may soon loosen their hold on the U.S. stock market, says PNC's Jeff Mills.

"I think, as we move into the second half of the year, this narrative of global growth potentially causing problems here in the U.S. is going to shift to a stabilization of global growth and then more of a focus on things like earnings," Mills told.

Mills, who is co-chief investment strategist at PNC Financial Services Group, wasn't as fazed by last week's yield curve inversion as most of Wall Street was. Instead, he said investors should take the inversion with "a grain of salt," saying it was more of a technically driven move than an outright signal of the U.S. economy hitting the brakes.

Mills also said that the world's most pronounced areas of weakness, like the Chinese market, appear to be bottoming based on his analysis.

Moody’s Investor Service, is out with a credit review report on Turkey, citing that the erosion of Turkey’s foreign currency reserves is credit negative.

• Intervention to support the lira is contrary to the central bank’s longstanding policy to allow the exchange rate to float freely and poses renewed questions about the transparency and independence.

• The renewed slip in Turkey’s financial markets and uncertain policy reaction to recession raises a risk of further capital flight.

• The results of local polls will likely determine the future path of macroeconomic policy.

• This weekend’s municipal elections results will likely determine the future path of macroeconomic policy and therefore whether the latest market shock persists or dissipates.

EUR/USD

Resistance levels (open interest**, contracts)

$1.1404 (2673)

$1.1360 (2356)

$1.1326 (1075)

Price at time of writing this review: $1.1234

Support levels (open interest**, contracts):

$1.1193 (4580)

$1.1147 (4763)

$1.1099 (1627)

Comments:

- Overall open interest on the CALL options and PUT options with the expiration date April, 5 is 77933 contracts (according to data from March, 29) with the maximum number of contracts with strike price $1,1150 (4763);

GBP/USD

Resistance levels (open interest**, contracts)

$1.3192 (421)

$1.3145 (332)

$1.3112 (736)

Price at time of writing this review: $1.3045

Support levels (open interest**, contracts):

$1.2964 (1322)

$1.2940 (1069)

$1.2911 (1347)

Comments:

- Overall open interest on the CALL options with the expiration date April, 5 is 26068 contracts, with the maximum number of contracts with strike price $1,3400 (4322);

- Overall open interest on the PUT options with the expiration date April, 5 is 32498 contracts, with the maximum number of contracts with strike price $1,2500 (5046);

- The ratio of PUT/CALL was 1.25 versus 1.22 from the previous trading day according to data from March, 29

* - The Chicago Mercantile Exchange bulletin (CME) is used for the calculation.

** - Open interest takes into account the total number of option contracts that are open at the moment.