Intraday Market Update
US equities are posting steep gains after a string of strong manufacturing reports from around the globe, including a better than expected US ISM manufacturing report. The S&P 500 futures gapped +15 points higher at the open and have tacked on another +6 points. All of the major indexes have gained +1.50% or more on the day. Positive earnings reports from large European financials HSBC Holdings (HBC) and BNP Paribas catapulted equities in the region to +2% to +3% gains across the board. A positive reaction to China's worst Manufacturing PMI reading in 17 months helped stocks in the Asia-Pacific region post strong gains. Front month crude oil has broken out to levels not seen since May 5 and is now firmly above its 200-day SMA. Meanwhile copper has continued its surge to levels not seen since late April.

The US ISM Manufacturing Index declined to 55.5 in July from 56.2 in June, which was less of a decline than estimates calling for a decline to 54.5. Today's report marks the 12th consecutive month the manufacturing sector has been above 50 which is the level that separates contraction versus expansion. Improvements in employment, supplier deliveries and inventories reduced the impact of a m/m deceleration in new orders and production. The employment component is in its 8th consecutive month of growth, supplier deliveries increased to 58.3 from 57.3, and inventories rose to 50.2 which is the 1st month of growth in inventories after 3 months of contraction. On the negative side, new orders slowed abruptly in July to 53.5. This is still above 50 which indicates growth but the reading is down -5 points from June which makes the 53.5 reading the lowest since the manufacturing sector emerged from recession last summer. Backlog orders also slowed to 54.5 which is a -2.5 point decline and its lowest reading since December. The US ISM Non-Manufacturing Index will be released on Wednesday with expectations for a decline to 53.0 from 53.8 in June.

Similar manufacturing reports across Europe were also favorable. In the UK manufacturing expanded and exceeded estimates, while activity in Germany remains at levels signaling solid expansion. Other favorable manufacturing reports in the euro zone included readings from Sweden, France, and Spain, while Italy's release came in just below expectations, but still showed expansion in the country's manufacturing sector accelerated.

Manufacturing data from China back in early July was a big concern for the market sending US equities to 8 month lows. China's July manufacturing report was even worse than the June data with the reading decelerating to new 17 month lows. However, investors around globe appear to be interpreting the data as another reason why China will not be aggressive in withdrawing stimulus and/or raising rates anytime soon.

Also adding to sentiment are comments from Federal Reserve Chairman Ben Bernanke. In a speech this morning Bernanke warned that deflation was a major cause of the Great Depression and said the FOMC should be wary of tightening policy too soon. The lack of reasons for central banks around the globe to tighten monetary policy is fueling risk appetite. As the week progresses the focus should shift to the US July payrolls data set for release on Friday and this could set the tone in the markets for the remainder August.

Equity news is fairly light. Heavy vehicle manufacturer Oshkosh reported a strong Q3 and offered bullish forward looking comments. The company's CEO said Q4 would be equally strong and revenue will be higher next year. OSK is down -2% after gapping +4% higher at the open. Health insurance name Humana crushed earnings estimates and raised their outlook. HUM is up +3%.

Core Sector List:
Overall reading: 15 sectors advancing, 1 sectors declining
Strongest Sectors: Oil Services, Oil, Banks
Weakest Sectors: Gold, all others over +1% higher


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