By: Dr. Mike Campbell

Most analysts are expecting a painful year in 2012 with some nations returning to recession; hopefully only briefly. Unemployment is expected to remain a problem with most analysts expecting further job losses. Growth throughout the industrialised (democratic) world is set to be anaemic and some contraction is predicted – not so much a New Year as a continuation of the old then. So, improved manufacturing data around the world has come as a pleasant surprise which has lifted markets.

The devil is always in the details, but the snapshot provided by several economic indices was enough to boost markets by between 1 and 2.4%. In America, the ISM manufacturing index produced its best showing in seven months coming in at 54.1 – a value above 50 suggests growth, pushing the Dow Jones Industrial average up by 1%.

On this side of the pond, the Markit Purchasing Manager’s Index (PMI) for the Eurozone climbed from 46.9 in December to 48.9 for January. Whilst this still indicates contraction, it suggests that the problems are easing. Breaking down the data, it revealed that Italy and Spain contracted whilst Germany returned to growth with a PMI value of 51; its best showing for six months. The German Dax index put on 2.4% on the strength of the data.

The Italian and Spanish data also provided crumbs of comfort. Whilst the PMI values for both nations showed continuing contraction, the values (46.8 and 45.1) were the best seen for four and five months, respectively.

On the other side of the ledger, Greece returned a PMI value of 41 which indicates that Greek production is declining at the fastest rate in the survey’s history. France’s value also slipped to 48.5, but despite this, the Cac put on 2%.

The UK managed to return its best index reading in eight months at 52.1 and that pushed the FTSE up by 2%.