British shares started the second quarter on a positive note on Monday, propelled by unexpectedly upbeat data from China and progress in U.S.-China trade talks. UK markets joined the global rally, rising by as much as 1 per cent, before ending 0.5 per cent higher. Sell off in defensive stocks, which are deemed safer at times of uncertainty, capped the rally, while the midcaps added 0.6 per cent.
London's main bourse rose for the third straight day, helped by an increase in mining and banking stocks. The rally was sparked by data showing, for the first time in four months in March, Chinese factory activity expanded. The market was also optimistic about a resolution to the prolonged trade dispute between the US and China. Positive sentiment was also driven by a survey that showed Britain's manufacturing sector boomed in March to an unexpected 13-month high as companies ramped up stockpiles amid fears of a no-deal Brexit.
Mining stocks rose by 2.5 per cent, reaching its 10-month high, as prices of base metals rose. Since China is the world's biggest nickel consumer, upbeat data helped benchmark nickel rose by 0.7 per cent, while Asia-exposed stocks such as HSBC and Standard Chartered were helped by reassurance about the Chinese economy. According to government figures reported on Sunday, Purchasing Managers' Index (PMI) increased to 50.5, compared to 49.2 in February, indicating the country's huge manufacturing industry unexpectedly rebounded in March, with factories picking up new orders and hiring workers again. A separate survey of manufacturing activity by media group Caixin and research firm Markit, which better reflects a sentiment among smaller and private firms, also showed a modest expansion at 50.8 versus expectations of 50; a reading above 50 indicates growth from the previous month.
The data defied the recent slowdown in the world's second-biggest economy and indicated that stimulus measures were boosting the economy and is countering some of the drag of U.S. trade tariffs. At the end of last year, the manufacturing activity weighed down by tariff war, had started to contract. Economist had predicted the trend to continue amid alarming data from the US. It must be noted that the data in February was weighed down by Lunar New Year holiday, leading to fears that the March data may overstate the actual increase in activity. Demand for Chinese goods is often regarded as the bellwether of the global economy as the Goods made in Chinese factories are shipped all over the world.
On Friday, U.S. President Donald Trump said that the trade deal is going well, with high-level trade negotiations between the two countries are set to resume in Washington this week. Treasury Secretary Steven Mnuchin has described talks as "constructive", and Chinese Vice Premier Liu He is due to visit the U.S. for further negotiations.
The IHS Markit manufacturing purchasing managers' index recorded its highest reading for 13 months, rising to 55.1 in March from 52.1 in February, reflecting an expansion in manufacturing activity. However, many believe the companies increased output because of concerns that in a no-deal Brexit, they would struggle to supply customers with their products.
However, political uncertainty still looms large in the market as the lawmakers have not reached a consensus yet, and default remains for the UK to fall out of the European Union without a deal on April 12.
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