MORNING REPORT
(7am AEDT)

A reading on the Chinese manufacturing sector lifted sharply in the latest month. HSBC´s China Flash PMI rose from 49.9 to 51.1 in October. Any reading above 50 suggests stronger growth in the manufacturing sector.

In contrast to China, the flash Markit euro zone composite PMI eased from 49.1 to 47.2 in October. And in the US the Chicago Fed national activity index improved from minus 0.59 to minus 0.22 in September.

European shares posted solid gains on Monday with miners leading the way in response to Chinese economic data. In London trade shares in Rio Tinto rose by 7.1pct with BHP Billiton up 5.2pct. The FTSEurofirst index rose by 1.1pct but trading volumes were low. The German Dax was up by 1.4pct and the UK FTSE gained 1.1pct.

US sharemarkets again posted strong gains on Monday. The Chinese economic data provided encouragement and investors were hopeful that European leaders would deal with the debt crisis at a summit on Wednesday. And takeover speculation drove shares of Yahoo! higher by 3.2pct. The Dow Jones rose by 105pts or 0.9pct with the S&P 500 up by 1.3pct and the Nasdaq lifted 62pts or 2.4pct.

US treasuries were little changed on Monday. While equities and commodities rose, economic data was sparse and traders awaited a euro zone summit on Wednesday. US 2yr yields were steady near 0.28pct and US 10yr yields were steady near 2.23pct.

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The euro and commodity currencies lost ground in early European trade but regained all losses in US trade. The Euro eased from highs near US$1.3950 to US$1.3825, but rebounded to end US trade near US$1.3925. The Aussie dollar also eased from around US104.20c to US103.65c, but soared in US trade to end trade at US104.75c. And the Japanese yen lifted from 76.30 yen to JPY76.00, ending US trade near the strongest levels.

Global crude oil prices soared on Monday in response to stronger-than-expected Chinese economic data and a weaker greenback. Traders were also watching the situation in the Middle East after Turkish tanks crossed into northern Iraq on Monday in pursuit of Kurdish militants. Nymex crude oil rose by US$3.87 or 4.4pct to US$91.27 a barrel and London Brent crude rose by US$1.89 or 1.7pct to US$111.45 a barrel.

Base metal prices rose strongly for a second day following a strong reading on the Chinese manufacturing sector. Metals rose between 3.9-6.9pct with copper and nickel leading the way. The gold price rose in line with other commodities with the Comex December gold price up by US$16.20 an ounce to US$1,652.30.

Ahead: In Australia, Reserve Bank Deputy Governor Ric Battellino delivers a speech. In the US data on home prices and consumer confidence are scheduled together with the Richmond Fed index.

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