A record jump in manufacturing activity in the UK, US and eurozone lifted stock markets on both sides of the Atlantic on Tuesday.
Pent-up demand after a year of stop-start activity due to the coronavirus outbreak pushed factory order books to new highs in May, adding to previous growth records set in April, an investigation found from factory owners.
Oil prices surged, with Brent crude surpassing $ 70 a barrel for the first time since March, while US crude hit its highest price in two years. The widespread recovery has increased demand for precious metals such as silver, used in electric cars and environmentally friendly solar panels.
With more than half of all U.S. adults fully vaccinated and much of the economy open for business, U.S. manufacturers have been able to ramp up production to unprecedented levels and bolster some analysts’ predictions that GDP growth could double by the end of the year.
US President Joe Biden’s $ 1.9 billion stimulus package and the prospect of a multibillion-dollar infrastructure hike later this year have also fueled consumer and business demand to push the ISM measure. of production activity at 61.2 last month from 60.7 in April, well above the 50 mark that separates expansion from contraction.
The UK saw even stronger growth in its manufacturing sector in May, as factories benefited from swelling order books from domestic and overseas buyers. The IHS Markit Purchasing Managers Index (PMI) rose to 65.6 from 60.9 in April.
In mainland Europe, Spain and France have lagged behind Italy and Germany in the race to secure manufacturing orders, according to PMIs, after German factories maintained a surge in output.
Mining and housing construction firms – which made gains after an 11% increase in annual house prices – pushed the FTSE 100 index of listed stocks to last month’s high of 7,129, after rising closed at 7,083, up nearly 1% on the day.
A vote of investor confidence in German companies propelled the Dax index to an all-time high of 15,567, from a low of 8,928 last year when the pandemic struck.
The Dow Jones recovered its earlier losses to 34,576, up 0.1% on the day and well ahead of the 19,173 crash recorded in March 2020. The MSCI Global Equity Index rose 2.51 points or 0.35%, to 713.96, marking a record.
Analysts said the UK and US markets were held back by fears that critical components and raw materials were scarce and could dampen production growth in the coming months.
Some economists have warned that manufacturers will be forced to pass on price increases unless supply chain bottlenecks ease, easing pressure on inflation.
Inflation in Germany has reached 2.4% and the euro area average fell from 1.6% in April to the European Central Bank’s 2% target, indicating that prices in all 19 member countries are increasing at an unprecedented rate for two years.
Fears of a price hike were confirmed by a tweet from Tesla boss Elon Musk on Monday who said shortages would force the electric automaker to raise prices this month, making it the sixth incremental increase this year, according to the Electrek website.
Import prices rose in the United States in part because of the declining value of the dollar, which weighed on the domestic purchasing power of foreign products. The UK has seen the pound rise this year, mainly in response to the Brexit deal with the EU, offsetting the rise in the price of oil.
Danni Hewson, an AJ Bell financial analyst, said: âStrong housing market numbers have boosted the homebuilding industry as miners were in demand as commodity prices returned to an upward trajectory. “
She said the rise in the FTSE was all the more impressive against the backdrop of the rally in the pound, which is also depressing the relative value of overseas earnings among the companies that dominate the index.
There were also concerns that the recovery would slow down later this year, unless immunization programs were rolled out in developing countries.
In a warning to governments and markets to avoid exuberance, the International Monetary Fund said the current boom could easily falter if mutations in the virus could spread, especially in developing countries.
The Washington-based organization’s chief executive, Kristalina Georgieva, said her proposal for a $ 50 billion plan to end the pandemic was needed to end a situation where less than 1% of Africans were vaccinated. She said the $ 50 billion price tag was eclipsed by the estimated $ 9 billion increase in economic activity by 2025 that could be achieved, “making it the best public investment ever. “.
In his first speech since becoming Secretary-General of the Organization for Economic Co-operation and Development, Mathias Cormann reinforced the message that without widespread protection against the virus, the recovery of the global economy would slow down.
âWe must continue to overcome the immediate health challenge, including by pursuing a total effort to reach the entire world population with vaccines. It is not just an act of benevolence on the part of advanced economies, âsaid the former Australian finance minister.