By Carlos Guillen

Overall, equity markets have been able to hold on to the gains realized earlier this morning as manufacturing in the U.S. grew in January at the fastest pace in seven months, adding to encouraging economic indications from China and Europe, and adding to signs that Greece is inching closer to a debt deal.

The encouraging economic data began this morning with ADP jobs numbers, as 170,000 private sector jobs were gained during January. While the result was lower than the Street's estimate calling for a gain of 200K jobs, the good news was the jobs are still being added to the economy, particularly from small-sized and medium-sized business, which added 95,000 and 72,000 positions, respectively.

News from China was also a bit encouraging. Chinese manufacturing indexes rose in January as the world's second-biggest economy withstood weaker exports driven by Europe's debt crisis and a government-induced property slowdown. The official purchasing managers' index increased to 50.5 from 50.3 in December, exceeding Street's estimate of below 50 that would have meant a contraction. While the gain in PMI was encouraging it should be noted that the Chinese economy is still expected to soften up its economic growth this year, and part of this was signaled by a slight weakness in net export and employment components of the PMI index.

On the European front, Greece and the IMF said that negotiations for a solution to the debt situation will be concluded within days, raising investor's hopes that the country will dodge a disastrous default in the spring. In discussions late last week in Athens, creditors lowered their demands for an average coupon on the new 30-year securities they would receive to as little as 3.6 percent from 4.25 percent after European officials demanded they take steeper losses. While the lower coupon would lead to an estimated loss of 70 percent or more for investors, adding a so-called gross domestic product warrant, which would pay bondholders more if the Greek economy rebounds, would trim the loss in net present value terms by an estimated 0.5 to 3 percentage points. Greece is running out of time, as it faces €14.5 billion bond redemption on March 20 that it cannot afford to pay without additional help. A default would spell disaster for the country and destabilize European and global markets.

During the trading session today, ISM released its Purchasing Managers' index (PMI), considered by many to be a leading economic indicator. PMI in January clocked in at 54.1 percent, increasing from the 53.1 percent reported in December but landing a bit below the 54.5 percent consensus estimate. Given that a reading above 50% indicates the manufacturing economy is generally expanding, the January reading represents the 32nd consecutive month of manufacturing sector growth. Moreover, given that a PMI over 42.6%, over a period of time, generally indicates overall economic expansion, the result also indicates the 30th consecutive month of overall economy growth. Also encouraging was that the PMI result increased for the third consecutive quarter, indicating a consistent improvement to the economy.

All in all, the macroeconomic data is encouraging and is serving to lift equity markets after four consecutive days of slight losses. At the moment the Dow Jones Industrial Average is close to testing resistance at the 12,800 level once again, but the momentum does not appear to be in place to indicate a solid break through.

Global Manufacturing Data Blitz
By David Urani

Today is all about manufacturing across the world, with a series of key reports from China, Europe and the USA. The good news is that in general, the reports were above expectations, and that was enough fuel to send the world markets into happy mode. Yet at the same time, if you ask me the results out of Europe and China weren't particularly strong at face value and were indicative of the stuttering economic backdrop.

Let's start out in Europe, where the headline PMI index was at a level of 48.8, an increase from 46.9. The result was very close to the preliminary reading, so not much of a surprise. Most of the optimism seems to be coming from the UK result, which showed a nice boost up to 52.1 from 49.6, above the 50.0 consensus. Germany also continues to show strength as well, up at 51.0 from 48.4.

As a reminder, readings above 50 for these PMI indices indicate expansion and below 50 represent contraction. Overall, while the Eurozone showed improvement, manufacturing is still broadly decreasing, so I feel any optimism must be taken with caution. Take for instance the result in Spain which is being cheered for being a 5-month high, but it is still solidly negative at 45.1. The same goes for Italy, which is at a 4-month high but is still below 50. Then there are Greece and France, each of which worsened.

Over in China the picture looks a little better. The consensus for their official PMI reading was for a slight contraction to 49.5 from 50.3, but instead it rose to 50.5. That had positive implications for the current state of the economy and for global trade but it was also almost too much of a goldilocks result in that it was neither cold nor hot and that worried traders who are on the lookout for fiscal stimulus from the Chinese government. A weaker result would have raised hopes for some fiscal action, while a stronger result would have obviously been deemed a success. This result landed frustratingly in the middle. In fact, the Chinese markets traded down today due to the fact that the PMI came in strong enough that it did not necessarily support the case for the government loosening fiscal policy further, and weak enough to suggest ongoing vulnerability.

Here at home the ISM manufacturing index rang in a 54.1 reading, which was slightly below the 54.5 consensus, but note that the December results were revised down so the increase in the index was roughly in line with expectations. Perhaps the main takeaway of the ISM is that it was the best reading since June and the third increase in a row. New orders were the standout component, up to 57.6 from 54.8; in the meantime production and employment slowed modestly but were still in the plus column. One item to keep an eye on is inventories, which remained negative at 49.5 (up from 45.5). You may remember that inventory rebuilding was a major contributor to 4Q GDP growth, and the fact that supplies have now been in contraction for a fourth straight month could support ongoing restocking activity. Overall it's a satisfactory result that can keep investors upbeat about the US market.

Construction Boost

Personally, between a rebounding housing market and industrial production capacity utilization returning near historical norms, I have been looking out for the construction market to make a rebound this year. Today's construction spending report from the Census Bureau was a nice surprise, gaining 1.5% in December and beating the 0.5% expectation. We saw some positive gains in the aforementioned sectors, starting with residential construction rising to its highest level since June at $248.5 billion annually. And then the real highlight was manufacturing, which spiked up to its highest level since March 2010 at $44.5 billion.