By Geoffrey Smith
Investing.com -- Europe’s bourses got off to a broadly positive start for September after a slew of business surveys showed most of the region’s manufacturing sector starting to stabilize, despite still suffering from the effects of the U.S.-China trade war.
The big outlier was the U.K., where manufacturing activity took another dive in August amid an increasingly febrile atmosphere around Brexit. IHS Markit’s monthly purchasing managers’ index fell to a new seven-year low of 47.4, down from 48.0 last month. Analysts had hoped for an upturn to 48.4.
IHS Markit said the decline was due primarily to an “accelerated contraction in new work”, which bodes ill for the rest of the year. It noted that the businesses whose responses make up the survey said some EU-based customers had begun to re-route their supply chains away from the U.K. in anticipation of the scheduled departure of the U.K. from the EU at the end of October. However, it also noted that demand from the U.S. and Asia had weakened.
In addition, it noted that over 80% of respondents had mentioned sterling’s weakening inflation in connection with rising input prices. IHS Markit director Rob Dobson said the figures were consistent with a 2% drop in quarterly output.
The U.K. FTSE 100 still rose 1.1% by 5 AM ET (0900 GMT), partly a reflection of the hit delivered to sterling, which fell 0.3% against the euro and 0.6% against the dollar. U.K. assets are likely to stay volatile this week as parliament returns from its summer recess. Opponents of the government's willingness to leave the EU without a transitional deal are expected to propose legislation to rule out such an outcome on Tuesday, according to The Times of London.
The broader Stoxx 600 benchmark was up 0.4% at 380.90, its highest in a month, after final PMI readings for the euro zone and its biggest economies were little changed from preliminary data. Italy’s PMI ticked up slightly but remained in contractionary territory at 48.7, versus 48.5 in July. The FTSE MIB continued to outperform, however, as the center-left Democratic Party and Five Star Movement moved ever closer to formalizing a new coalition government.
Germany’s DAX and France’s CAC 40 both rose 0.1%, the former left unmoved by two regional elections at the weekend at which the right-wing populist AfD party made substantial gains – albeit not big enough to allow it to declare itself the winner.
Trading is expected to stay relatively thin due to the U.S. Labor Day holiday.