U.S. and China Stocks Break Out on Strong Manufacturing Data
Global stock markets were buoyed on Monday at the very beginning of the new trading week, month, and quarter. Driving the surge was Chinese manufacturing data, which came out significantly better than expected. Markit’s Caixin Manufacturing Purchasing Managers’ Index (PMI) for March hit 50.8, its highest level since June of last year. Prior to the release, consensus estimates were pointing to a neutral 50.0 reading. PMI levels above 50.0 denote an expansion while those below 50.0 show a contraction.
Prior to Monday’s manufacturing release, worries over slowing economic growth, especially in China, had placed pressure on global equity markets. But China’s highly positive PMI release helped alleviate those worries, at least for the time being. The data prompted stock indexes in Asia, Europe, and the U.S. to rally sharply.
U.S. and U.K. Manufacturing Data Also Bullish
Not to be outdone, both the U.K. and U.S. also released better-than-expected manufacturing data on Monday. The U.K.’s Manufacturing PMI hit 55.1, its highest level since April 2018. And the U.S. ISM Manufacturing PMI rose to 55.3 in March from the previous month’s 54.2. All of this data reflect increased economic growth sentiment, at least in the manufacturing sector.
Global Markets Rally on Economic Data
The positive effect on equity markets on Monday was strong and consistent throughout the trading day. Major U.S. indexes like the S&P 500, Dow, and Nasdaq Composite all gapped up and gained over 1% on the day. The S&P 500 also broke out above recent highs.
Shanghai Composite Breaks Out
As for the Shanghai Composite (SSEC), China’s most prominent benchmark equity index, the Caixin PMI data on Monday helped prompt a strong +2.58% surge. This resulted in a clean breakout above the tight consolidation (or pennant pattern, as shown on the chart) that had been in place throughout March. This tentatively confirms a continuation of the sharp rebound and recovery that started at the beginning of the year.
Another key technical pattern that supports a further bullish move is the major ‘golden cross’ (when the 50-day moving average crossing above the 200-day moving average) that just occurred around two weeks ago.
With any follow-through on Monday’s breakout move, the next major target to the upside for the Shanghai Composite is around the 3220 resistance level.
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Disclosure: At the time of this article’s publication, we have no position in any security or trade/investment mentioned, nor do we have any business relationship with any company whose stock may be mentioned.
Senior Market Analyst at The Technicals
A veteran global macro trader/analyst, Bart focuses on major market moves in currencies, commodities, fixed income, and global equity indexes. Bart stresses inter-market correlations and dynamics while keeping a close eye on risk. He has published countless market analysis pieces and has been a guest expert for a variety of major financial media. Contact Bart