The week began slowly but the low volatility streak came to an end with a ban yesterday, as stocks plunged more than 1% on Wall Street.
By Peter Martin
Thursday, March 26, 2015
Trading has returned to a more staid condition today, though prices have declined once more as risk-appetite has been eroded by heightened concerns over the stability of the Middle East.
By early afternoon in New York, the Dow Jones was down 42 points or 0.24% at 17,676 and the S&P 500 fell 0.15% to 2058.0, though this represented a fair recovery from the lows of the day, the Dow Jones having been down more than 100 points earlier in the session.
Risk aversion has been sparked by a Saudi Arabia-led coalition launching air strikes in Yemen, in an effort to strengthen the position of President Abdrabbuh Mansour Hadi against Houthi rebels. The rebels, who are backed by Iran and support Yemen’s former president, have made a swift advance through the country. The Iranian Foreign Minister promised to ‘make all efforts’ to control the crisis in Yemen, but the latest events raises fears of a wider conflict.
Anxiety over the potential impact on oil supplies in the region has pushed energy prices higher today. US light crude oil futures rose 4.95% to $51.60 a barrel. The resurgence of oil back above the $50 mark comes despite swelling supplies – the Energy Department yesterday revealed US inventories grew by 8.2 million barrels last week, the 11th consecutive build. At least for the time being, though, geopolitical concerns are trumping the issue of oversupply.
On the domestic front, macro data has been encouraging today. The latest labor data was very positive, showing a marked improvement from last week’s numbers. Initial jobless claims shrunk to 282,000, an improvement of 9000, coming in below the consensus estimate of 293.000. The four-week moving average was consequently lowered to 297,000 from 304,750 in the week prior, though this does not compare favourably to how things were looking a month ago.
A separate report points to health in the US services sector. The services PMI rose to 58.6 in the flash reading for March, from the 57.0 seen at mid-month February and 57.1 at the end of February. New orders stand at a six-month high and the backlog in unfulfilled orders is at a five-month high, which will boost hopes that momentum can be maintained. The manufacturing sector may be struggling with the stronger dollar (the Kansas City Manufacturing Index was the latest survey to report a regional decline for March), but the services sector – with far less exposure to export strength – has been suffering no such problems.
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