Stocks surge as manufacturing accelerates in US and China

September trading got off to a roaring start on Wednesday. Bloomberg reports:

Global stocks surged the most since May, Treasuries tumbled and copper rallied as manufacturing in the U.S. and China grew faster than economists estimated, bolstering optimism in the economy. The dollar, yen and Swiss franc weakened.

The MSCI World Index rallied 2.9 percent at 4 p.m. in New York, its biggest gain since May 27, and the Standard & Poor’s 500 Index jumped 3 percent to 1,080.29. Ten-year Treasury yields rose 11 basis points to 2.58 percent. Copper and aluminum advanced more than 2.4 percent to pace gains in metals. The Australian dollar strengthened against all 16 major counterparts after the nation’s economic growth topped forecasts.

Unexpectedly strong growth in manufacturing was a major driver for markets, and China had provided much of the initial impetus with its PMI reports. From AFP/CNA:

Manufacturing in China rebounded in August, surveys showed Wednesday, easing concerns the economy was heading for a sharp slowdown in the second half of 2010...

The HSBC China Manufacturing PMI, or purchasing managers index, rose to a three-month high of 51.9 last month from 49.4 in July.

A separate survey published by a government agency -- the China Federation of Logistics and Purchasing (CFLP) -- showed manufacturing activity reached 51.7 last month compared with 51.2 in July.

Later on Wednesday, the eurozone PMI report did not show an acceleration in manufacturing but it did provide a positive surprise nevertheless. From Bloomberg:

Growth in Europe’s manufacturing industry slowed in August and export demand fell to the lowest in seven months, adding to signs the economy is cooling after the second-quarter surge.

A gauge of manufacturing in the 16-nation euro region declined to 55.1 from 56.7 in the previous month, London-based Markit Economics said today. That’s above an initial estimate of 55 released on Aug. 23. It’s the 11th straight month with a reading above 50, indicating expansion.

Manufacturing also slowed in the UK. Reuters reports:

Growth in the country's manufacturing sector slowed more than expected last month, led by the weakest expansion in new orders for more than a year, a purchasing managers' survey showed on Wednesday.

The Markit/Chartered Institute of Purchasing and Supply Manufacturing PMI fell to 54.3 in August -- below all forecasts in a Reuters poll -- from a downwardly revised 56.9 in July. That was the lowest since November last year although it was still above the 50 mark which separates growth from contraction.

While the UK report may have been disappointing, the situation in Japan is looking even more precarious after a report on Monday had shown that manufacturing barely grew in August. Again from Reuters:

Japanese manufacturing activity expanded in August at its slowest pace in 14 months, a survey showed on Tuesday, as overseas demand ebbed while a strong yen weighs down the nation's exports.

The Nomura/JMMA Japan Manufacturing Purchasing Managers Index (PMI) fell to a seasonally adjusted 50.1 in August from 52.8 in July, the lowest level since 48.2 in June 2009.

In contrast, the ISM report on Wednesday eased concerns of a downturn in US manufacturing. Bloomberg reports:

Manufacturing in the U.S. expanded at a faster pace than forecast in August as factories added workers and cranked up production.

The Institute for Supply Management’s factory index rose to a three-month high of 56.3 from 55.5 in July, the Tempe, Arizona-based group said today. Readings greater than 50 signal growth, and the figure was projected to drop to 52.8, according to the median forecast in a Bloomberg News survey.

But the market action notwithstanding, other US economic data released on Wednesday had actually not been as positive.

While factories are helping extend the recovery, the housing slump keeps taking a toll on the economy. Construction spending in July fell twice as much as forecast, led by a slump in homebuilding that will depress growth, Commerce Department figures showed today.

The 1 percent drop brought spending to $805.2 billion, the lowest level in a decade, after a revised 0.8 percent decrease in June that wiped out a previously estimated gain...

Another report today raised concern about employment. Companies in the U.S. unexpectedly cut employment in August, data from a private report based on payrolls showed. Employment fell by 10,000, according to figures from ADP Employer Services.