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Equity Kickoff: U.S. manufacturing fuels equities

European cash indices are expected to open higher Tuesday on the back of better than expected manufacturing numbers from the US yesterday. This will most likely also fuel todays equity market, albeit we could see a bit of retracement at some point in today’s trading given the strong movements yesterday. Look for German unemployment and UK PMI manufacturing released at 0855 GMT and 0930 GMT respectively.

The rally from December continues after being fuelled partly from better than expected US manufacturing numbers yesterday. The whole theme running in markets now, namely the strength in the recovery in the US economy will continue throughout the week with pitstops Wednesday when ADP employment change are released and finally Friday when the job report is due. If these reports are coming out in line with expectations or above, the rally has potential to continue well into next week. For sure we have a bullish stance on equities for this week,  and in the sections below we touch upon the sectors and equities we prefer in such environment, but as we said there should be a retracement at some point given the rather forceful movements lately.

Germany, the growth engine of the Eurozone, is releasing unemployment at 0855 GMT and we are in line with market expectation that is 7.5% vs. a prior reading of 7.5%. The name of the game is the same within the Eurozone as in the US. In order for markets to really start believing in the recovery jobs needs to be created and the outlook for this in the Eurozone is however somewhat more bleak than in the US. A surprise to the upside would force the market higher, but we do not expect this.

UK PMI manufacturing is expected to drop at bit, 57.2, from the prior reading of 58.0 and that move would be in line with the PMI readings from other major European countries yesterday. So, we do not expect this release to move markets much.

We continue our stance on sectors from the old year – equities are in for a ride higher and we are still in favour of getting exposure to procyclical sectors like energy, basic materials and technology. Within basic materials we are still looking at miners and still prefer the big ones like Rio Tinto, BHP Billiton and Xstrata. Within energy we prefer E&P companies like BP, BG Group and Total, while we within technology prefer computer services looking for companies like CAP Gemini and Atos Origin.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.