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The 2012 trading year started off brightly

The 2012 trading year started off brightly enough after better than expected manufacturing data from China and India allowed  the bulls to take control with the subsequent rise in worldwide equity and commodity prices.

The ‘risk on’ theme saw the high yielding currencies like the Australian dollar and South African rand rise strongly and even the euro received support, rising over 1% against the US dollar as demand for the dollar’s ‘safe haven’ status ebbed.

Sentiment was further improved on Tuesday afternoon after the US Institute for Supply Management’s manufacturing index rose to a better than expected 53.9 in December from 52.7 the month before, a six-month high. A figure above 50 indicates expansion.

German unemployment data showed a fall to a record low.

Manufacturing in the UK also boosted sentiment. The purchasing managers’ index rose to a stronger than forecast 49.6 in December from 47.7 in November with new export orders rising for the first time in five months in December, reflecting increased levels of new work from clients in Germany, East Europe and China.

For David Noble, Chief Executive Officer at the Chartered Institute of Purchasing & Supply:

“There’s no denying that this year will bring both fresh and familiar challenges for the UK manufacturing sector. It is encouraging to see output remain steady last month after the declines of recent months, but with the sector highly exposed to a shaky euro zone, and reports of softening demand – ironing out economic problems in key export partners will be critical to how the sector performs (…) There are fragile signs of growth centred on some very specific parts of the sector where demand remains strong, particularly consumer and capital goods, with some businesses even reporting record growth that defies the gloom.”

Overnight, the minutes of the December 13th meeting of the Federal Reserve´s Open Market Committee (FOMC) were published with the US central bank announcing important modifications to its communications policy. Some analysts suggested that these changes are aimed at helping to keep bond yields low and, if successful, this may provide a useful stimulus for the US economy and by extension for the rest of the world.

On a more cautionary note, the minutes also show how the euro zone crisis has led staff at the US central bank to downgrade their medium term outlook for growth.