U.S.: ISM INDEX SUGGESTS STRONG Q4 MOMENTUM

- Production and employment were particularly strong, while new orders eased. - Overall, the report is indicating a strong pickup in U.S. manufacturing sector activity in Q4.

The U.S. manufacturing sector appears to have picked up where it left off in Q3, as the ISM manufacturing index rose to a better than expected 55.7. This was well ahead of the market consensus for a more modest 53.0, and was better than our more optimistic call for a 54.0 print. The increase now brings this indicator to its highest level since April 2006 and indicates the third consecutive month of expansion in U.S. manufacturing sector activity. The details of the report were equally strong, with 13 of the 18 manufacturing industries reporting growth. There were big gains in the production sub-index, which rose from 55.7 to 63.3, its highest level since mid-2006, whilethe employment sub index rose above 50 for the first time in over a year, rising to 53.1 from 46.2. New export orders rose marginally to 55.5 from 55.0, while new orders declined for the second straight month, falling to 58.5 from 60.8, though it remains well above the 50-threshold.Overall, the report suggests that the U.S. manufacturing sector picked up considerable steam in October and confirms the recent improvements seen in the various regional indicators. Moreover, given the fairly good performance of this indicator in predicting the performance of the U.S. economy more generally, it is pointing to further upward momentum in U.S. economic activity.