European indices boosted by Chinese manufacturing PMI

• European indices boosted by Chinese manufacturing PMI;

• Eurozone PMIs also encouraging despite missing expectations;

• Spanish unemployment falls for second consecutive quarter in Q3;

• US economic data and earnings in focus.

European indices are trading higher on Thursday, boosted initially by the Chinese HSBC manufacturing PMI over night that exceeded expectations.

The HSBC PMI is widely viewed as a more reliable indicator of the manufacturing industry in China as the survey predominantly covers small and medium sized companies, which benefit least from the large stimulus programs initiated by the government. An improvement in this figure suggests the improvement is sustainable which is why the response in the market tends to be stronger.

Not only did the figure remain in positive territory for a third consecutive month, it easily beat market expectations of 50.5, rising to 50.9. This is a very encouraging sign and, if the rest of the data hadn’t already done this, all but guarantees that growth in China this year will exceed the minimum 7% threshold set by the government, and probably its own targets from the start of the year of 7.5%.

Anything that’s good for Chinese growth is viewed as positive for the global economy, which is why we’re seeing European indices on the rise again this morning, following the brief pull back yesterday.

The manufacturing and services PMIs out of the eurozone, while mostly missing expectations, were also still very encouraging. While some also fell slightly from last month’s levels, the fact that only the French manufacturing PMI remains in contraction territory must be seen as a positive thing.

No one expects the eurozone to take off now that it has moved out of recession, in fact most see a couple of years of stagnation ahead. However, if these PMIs can remain mostly in growth territory in the future, that confidence, which is hugely important, should start to filter through to the hard data. If this confidence slips, pushing the PMIs back below 50, this would be a concern.

Unemployment in Spain has been a massive issue throughout the eurozone crisis. The figure rose to 27.2% in the first quarter, which is outrageously high. However, we are now seeing small improvements here, which continued in the third quarter, when it fell to 25.98%. The fact that this is the second consecutive drop is the most encouraging thing here as it suggests the rate may have topped out in the first quarter of the year. Unemployment must be a massive priority for the eurozone and now that we’re seeing the numbers heading in the right direction, hopefully it will be more of a priority going forward.

For the rest of the day, the focus will be on the US, with a number of pieces of economic data being released, while some big companies are scheduled to report third quarter earnings.

In terms of economic data, we have the weekly jobless claims being released, which are expected to fall to 340,000. This number is likely to continue to be inflated as California continues to work through its backlog of claims. The government shutdown is unlikely to have much impact on last week’s figure, following the deal that was agreed to reopen last Wednesday.

Other than that, we have the preliminary reading of the October manufacturing PMI, which is expected to fall slightly to 52.5, new homes sales for September, which are also expected to fall marginally to 420,000 and the trade balance figure for August.

Corporate earnings season is playing a much bigger part in the markets this week, after the US avoided default last week and reopened government. Today we have a large number of companies reporting, including Microsoft and Amazon which could have a significant impact on equity markets.

Ahead of the open we expect to see the S&P up 8 points, the Dow up 78 points and the NASDAQ up 17 points.