Market update

September begins with a flourish

By Andrew Webb , 3 September 2010

A more positive economic and business outlook greets the start of a new month.

September was ushered in with a flourish this week as encouraging manufacturing data boosted confidence across world markets and a flurry of deal rumours surfaced. Gains of up to 3% were registered in western markets on the first trading day of the new month in a broad-based rally in which most sectors participated. Those gains held through the week, although nerves returned in anticipation of US employment data.

"Away from equities, several agricultural and industrial commodities surged higher." Andrew Webb

After a long stream of disappointing data over the past few weeks that suggests the US economy is on the ropes, a surprise bounce in the ISM manufacturing survey was warmly welcomed. The market was expecting a drop from 55.5 to 52.8, but the index rose to 56.3 (a score of 50 or above indicates growth). On the face of it, the data are reassuring to investors who hope the recovery is sustainable, but some commentators were more sceptical, pointing out storm clouds on the horizon in forward-looking data. China's manufacturing sector also staged a modest recovery, boosting hopes that the authorities might be able to bring the economy to a comfortable, rather than bumpy landing.

The European Central Bank added weight to the arguments against a double-dip recession by making what it called a "very substantial" upward revision to its growth forecasts for this and next year. In June, the bank predicted growth this year of just 1%, but now anticipates around 1.6%. Next year's forecast was revised up from 1.2% to 1.4%.

In addition to the generally positive mood provided by the manufacturing survey and the ECB's optimism, a flurry of take-over rumours excited the London market. Telecoms company C&W Worldwide led the way, rising 7.7%. It was rumoured to be the target of a number of rivals' advances though no confirmation of interest was forthcoming. Tui Travel gained 7.5% on the suggestion that its majority shareholder would buy out smaller stakeholders. Hedge fund manager, Man Group, added 5.8% to its value after shareholders gave the green light to its acquisition of GLG Fund Partners and it revealed strong performance in its flagship fund. Inmarsat, Autonomy and Imperial Tobacco also rose on the back of deal activity.

Away from equities, several agricultural and industrial commodities surged higher. Following the devastating fires in Russia, Prime Minister Putin announced a 12-month extension to the country's grain export ban. The news coincided with news of food riots in Mozambique and contributed to fear that the food shortages suffered in 2007 and 2008 might be repeated. Wheat, corn, cotton, sugar and coffee have all risen to various highs in recent weeks.

Optimism about Chinese demand pushed the copper price to a four-month high and London's miners followed it upwards. Others metals and oil also rose this week as confidence about the global recovery took hold.