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European stocks rise as German manufacturing falls to 7 year lows

In a surprise development manufacturing activity in China stopped contracting in March, just about pushing back into positive territory and up to its highest levels since the end of Q3 last year, as optimism increased that the worst of the sector malaise may well be behind it.

Both the Caixin and official measures of manufacturing PMI rebounded back above the 50 level in March, however some caution should be exercised as the recovery could also have been driven by a post Chinese New Year catch up, after hitting three-year lows in February. Furthermore, both readings while positive were still pretty feeble, in edging just above stagnation levels.

Markets appear to have put these doubts to one side for now, with Asia markets following on from Friday’s positive end to Q1, with a strong open to the second quarter, as Chinese stocks hit their highest levels in 12 months.

Some of these gains are also predicated on further progress in the latest round of US, China trade talks which decamp to Washington this week.

This in turn has translated into a positive start for European markets this morning, ahead of the continuation of US, China trade talks this week, as well as an important week for global economic data.

The rebound in manufacturing appears to have found its way to Spain’s manufacturing sector which recovered to 50.9, in March from 49.9, however there was no respite for Italy, France or Germany which all slipped further in March, with Italy coming in at 47.4 down from 47.7, while France slipped further from its flash number, declining to 49.7, as did Germany, which came in at 44.1, down from 44.7, and its weakest level since July 2012.

This is quite a worrying trend for a region where the only real expansion has come about as a result from a central bank that has only just stopped its asset purchase program, and is set to launch a new loan program in September. Against such a backdrop it is hard to imagine that the EU would countenance a no deal Brexit. It would be an economic shock of a magnitude that would do immense damage to both sides and for all the bluster that the EU is said it is prepared, politicians tend to overestimate their abilities to plan, and underestimate the effect that their actions further down the line.  

It’s also set up to be another important week for the pound after last week’s extension of the deadline for the UK to leave the European Union to April 12th.

It may be April Fool’s day today, however there is unlikely to be much in the way of japery as MPs seize control of the order paper and hold another set of indicative votes this evening in order to establish an alternative plan to Prime Minister May’s hated withdrawal agreement.

While most voters may be forgiven for thinking that our Parliament is full of April fools, the stakes could not be higher with respect to trying to find a way out of the current impasse. It looks likely that the options, or a variation thereof, that were rejected in the last set of indicative votes will be resurrected again, to see if the voting math has changed materially now that the stakes are arguably that little bit higher.

The options range from “no deal” to a variation on the Norway model to outright revocation of article 50. Particular attention will be focussed on the two options that received the most votes, which were a customs union option which got 264 votes while there was a second referendum option which got 268 votes.

Against this backdrop EU officials have expressed doubts on any variables that MPs might be able to come up with, saying the choice is accepting the current deal or a long extension.

In company news Easyjet, sank to near two-year lows, after reporting a first half performance in line with expectations, with a H1 loss of £275m. Total revenue in the first half is expected to rise 7.3% to £2.34bn. In a sign of how competitive the airline sector is, revenue per seat is set to decline by 7.4%, as a result of headline costs rising 1.4%. A £37m rise in fuel costs hasn’t helped in this regard with management citing a cautious outlook for H2, and it appears that it is this concern over the outlook that has seen the share slide.

In the latest development in the Debenhams, Sports Direct saga, Sports Direct have said that they have been contacted by Debenhams shareholders, expressing concern over equity dilution, and expressing support for Mike Ashley to be appointed CEO.

Ride sharing app Lyft got off to a decent start on its first day of trading closing the session higher by 6%, at $78, however this was well below where it opened the day at $87.24, as some of the early enthusiasm waned, heading into the weekend. While there was plenty of enthusiasm for Friday’s launch the reality is that Lyft could well struggle to be profitable for quite a few years, which makes the valuation all the more difficult to justify.

US markets look set to take their cues from Asia and Europe’s positive start to the month with a strong start, in a big week for US data which culminates with the latest payrolls report due at the end of the week.

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