Manufacturing Data Boosts Markets Despite Impending GM Bankruptcy

All major stock market indexes gained more than 1 percent on Friday, ending the week, and the month, on a high and clinching a third month in a row rally on Wall Street. Ahead of markets opening on Monday the Dow Jones industrial average futures rose 1.4 percent, or 121 points, to 8,609, while the Standard & Poor’s 500 index futures rose 1.7 percent, or 15.30 points to 933.40, and Nasdaq 100 index futures climbed 1.4 percent, or 20 points, to 1,455.50. This surge of optimism appears to be as a result of encouraging survey data on manufacturing industries in Europe and Asia, fuelling hopes that the global economy may be turning around and heading toward recovery. Investors anticipate a similarly encouraging survey on the United States manufacturing industry to be released late Monday morning. Although analysts are forecasting the Institute for Supply Management’s purchasing managers’ index to rise to 42.0 from the 40.1 reported in April, which is still considered to be a contraction, the European and Asian reports have given investors hope that Monday’s report will be better than forecast.

Even the fact that General Motors would be filing for a chapter 11 bankruptcy on Monday 1 June, essentially handing over the restructuring of the company to the government, did not dampen the spirit of optimism in the market. The U.S. government will have a 60 percent stake in GM and will reportedly be providing an additional $30 billion, over and above the $20 billion already loaned to the automaker, to facilitate the company’s restructure, which is set to be a major undertaking. Anxious workers, dealers and associated suppliers will no doubt be watching with keen interest as to how the restructure will play out. It has been reported that GM anticipate cutting 20,000 jobs, closing around a dozen plants, canceling agreements with up to 40 percent of its 6,000 retail dealerships and dropping four of its brands – Saab, Saturn, Hummer and Pontiac. In a competitive market which is dealing with a drastic reduction in new car sales, there are many challenges facing GM. One of these challenges, which may not be so easy to quantify, is that the general public, and especially younger generation consumers, are very aware of environmental issues, and GM will have to go to great lengths to shed its gas-guzzling image and win consumer confidence.