European stocks got off to a strong start to the first session of Q2 as economic data released earlier today indicated that the recovery in the eurozone is well on track, dispelling concerns that have kept the pressure on risk assets in recent sessions. A string of eurozone PMI reading this morning offered some encouragement to investors in the region with France’s final manufacturing PMI reading rising to 48.8 in March from 48.2 previously. Germany’s final manufacturing PMI reading also came in encouragingly above expectations, posting a reading of 52.8 in March as growth accelerated against expectations of 52.4. Overall, the final eurozone manufacturing PMI reading was revised higher from 51.9 to 52.2 boosting demand for risk assets across the region with the DAX, CAC, and IBEX benchmark indices posting steady gains throughout the session while London’s blue chip index managed to recover some of yesterday’s steep losses, swinging back above 6,800.
It’s been a tough first quarter for commodities as global demand growth struggled to lift off and ample supplies skewed the fundamental balance. A stronger dollar added to worries shared by both producers and consumers with the traders seemingly the only group to benefit from the uptick in volatility. Having rallied from 90.00 to above 100.00 at its peak during Q1, an 11% gain, the dollar index pared back some of this impulsive move towards the end of March as it lost ground to a basket of major currencies and touched levels towards 96.00. However, support levels remain firm around 98.00 in the near term and some of the headwinds that have faced the commodity market over the first quarter could well continue throughout the second quarter.
Seaborne iron ore has been particularly hard hit by off balance fundamentals, exacerbated by a stronger dollar, with the TSI 62% Fe CFT Tianjin benchmark price leading the worst performers for the quarter as it ended Q1 at $51/tonne, down almost 28% since the start of the year. Despite an encouraging end to 2014 and start to2015 as Chinese port stocks of iron ore were drawn down from record highs, the end of Q1 saw stockpiles build back above 100m tonnes as the property and construction sectors continued to slow. Key to the performance of most industrial commodities has been the Chinese economic outlook which despite considerable efforts from policymaker in Beijing continues to be revised lower. Premier Li Keqiang cut the growth target to around 7% and investors will be keeping an eye out for any announcements pertaining to large scale infrastructure projects and loosening of monetary policy in a bid to kick start growth.