Markets React to Mixed Global Manufacturing Data

Stocks rallied while Treasuries and swap rates sold off across the curve as stronger manufacturing data in the US and Europe outweighed disappointing reports out of China.  Treasuries initially rallied overnight while oil prices declined after data showed China’s massive manufacturing sector continued to contract.  China’s official manufacturing PMI came in at 49.8 in October, the third consecutive reading below 50, the threshold for expansion.  Additionally, the Caixin China manufacturing PMI, a separate private report, showed an eighth straight month of contraction in the sector.  Sentiment improved during the European session after manufacturing PMI in the Eurozone came in broadly better than expected.  Germany, France, Italy, and Spain all showed expansion.  Comments from ECB President Draghi added to positive sentiment when he said that “the need for stimulus is still an open question”, boosting speculation that the ECB could expand quantitative easing in December.

In the US, data showed factory activity slowed in October, but it still beat expectations and remained above the 50.0 threshold.  The stronger dollar and weak global growth remain headwinds for the sector, but it appears most developed economies are on track for expansion.  Friday’s payrolls report will be crucial as investors and Fed officials try to get a better understanding of the state of the economy leading up to the December FOMC meeting.