A decline in UK Covid deaths provides grounds for optimism, with reopening stocks enjoying a strong start to the week. Meanwhile, manufacturing PMI figures disappoint as producers struggle to keep up with demand. 

  • FTSE 100 outperforms as deaths and cases head lower
  • Vaccination effectiveness could help to drive value outperformance 
  • Manufacturing PMI declines lift haven assets, as firms struggle to keep up with demand

The FTSE 100 has enjoyed a strong start to the week, with the index outperforming its US and German counterparts as traders head for value names once again. Recent fears around how Covid deaths could continue to rise in the wake of the July reopening have been allayed after the Sunday death count fell to 65 (from 71). With the UK experiences key in determining whether this vaccine provides enough protection to avoid another lockdown, yesterday’s decline in cases and deaths does raise hope that we will soon see the world return to some sort of normality. The UK has opened its borders to vaccinated visitors from the EU and US, with the removal of quarantine rules raising the hopes that travel will receive a big boost in the months ahead. 

Today has seen a host of manufacturing PMI figures fall short of market expectations, with the Chinese, Italian, and US surveys all highlighting how growth in the sector is slowing. The latest ISM manufacturing PMI reading from the US provided yet another reminder of the difficulties businesses are facing as they attempt to meeting rocketing demand. Dwindling inventories remain an issue for manufacturers, with hiring difficulties also a hinderance as businesses try to keep up with consumer demand. With demand outstripping supply across the sector, there are worries that we will soon see firm raise prices further in a bid to take advantage of the current seller’s market. Thus while we are seeing haven assets such as the dollar gain ground in the wake of poor economic readings, the fact that they are driven by surging demand does highlight that things are not as bad as they might seem at face value. 

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