Stocks jump, manufacturing slips

Investors dived back into stocks in a big way at the start of the second quarter.

In the US, the S&P 500 added 3.6 percent after Lehman Brothers announced that it was raising $4 billion from a stock sale.

In Europe, the Dow Jones Stoxx 600 Index added 3.3 percent despite announcements of an additional $19 billion in write-downs from UBS and 2.5 billion euros from Deutsche Bank.

Asian stock markets mostly rose yesterday, with the Nikkei 225 gaining 1 percent. The China market, though, diverged rather spectacularly, the CSI 300 plunging 5.5 percent.

The generally ebullient mood of stock investors yesterday could mean that they have discounted much of the write-downs from banks, as David Gaffen and Chad Brand suggest. Gaffen, however, also points out that previous rallies on the back of announced write-downs could not be sustained.

Felix Salmon calls the rally "unreal" and suggests not to read too much into it.

The performance of stocks yesterday probably did not reflect yesterday's economic reports, which had been mixed, although some did turn out better than expected.

Global manufacturing growth slowed in March, with the JP Morgan Global Manufacturing PMI falling to 50.8 from 51.1 in February.

US manufacturing continued to contract in March, but the ISM manufacturing index rose to 48.6 from 48.3 in February. However, the new orders index fell to 46.5 from 49.1 while the prices index went in the other direction, rising to 83.5 from 75.5.

Elsewhere, apart from Japan, where the manufacturing PMI had slipped below 50, manufacturing activity generally held up relatively well. The PMI readings in the euro area, the UK and India all stayed above 50, while in China, two measures of manufacturing activity both showed large increases.

The resilience of the rest of the global economy helped push the German unemployment rate down to 7.8 percent in March, the lowest level since August 1992, from 8 percent in February. The eurozone unemployment rate had remained at a record low of 7.1 percent in February.

The resilience of the global economy, though, could be put to the test in coming months, as reports yesterday showed that the weakness of the US economy is persisting and hurting construction spending and auto sales.