Air Of Uncertainty Despite Strong Indicators
Stock prices on Wall Street have begun the week trading with an air of uncertainty, with the major stock index benchmarks dipping below Friday’s closing levels despite a string of encouraging economic indicators released on Monday.
Tuesday, June 17, 2014 - 00:00
By early afternoon in New York, the Dow Jones Industrial Average was down 0.09% or 15 points at 16,760 and the S&P 500 index was off 0.06% at 1935.1.
We have seen further signs today that the manufacturing sector has been enjoying something of a purple patch recently: the Fed’s Empire State Manufacturing survey improved to a level of 19.28 this month from May’s reading of 19.01, which is a four-year high for this indicator. New orders, the most forward-looking component in the survey, were also very strong, climbing to 18.36, which is also a four-year high. Though only specific to a limited region, this provides an early glimpse at June’s manufacturing conditions and suggests there could be reasons to be optimistic, continuing the strength seen in May.
The Fed’s industrial production index rebounded last month with a better-than-expected 0.6% increase following April’s 0.3% contraction (originally reported as a 0.6% decline).The manufacturing component of the index advanced 0.6%, while overall capacity utilization improved to 79.1% from 78.9%. Movements in the Fed’s industrial production index have shown a fairly close correlation to GDP historically, so expectations for the second quarter to show improvement in GBP growth from the first will have been reinforced by this May bounce back.
Elsewhere, the National Association of Home Builders today said its Housing Market Index, which is compiled by surveying the opinions of members of the group, has risen to 49 this month, a substantial improvement from May’s level of 45. Though this remains below the 50 threshold that is regarded as positive building conditions, the bounce in sentiment amongst builders is a welcome move in the right direction. The current sales and future sales components are both well above 50, but the headline level of the index is dragged down by the component that measures buyer traffic, which remains mired in deeply negative territory at 36, despite a three-point improvement from May. 'After several months of little fluctuation, a four-point uptick in builder sentiment is a welcome sign and shows some renewed confidence in the industry,’ said NAHB Chairman Kevin Kelly.
The security of Iraq continues to weight on certain financial markets after militants captured the northern city of Tal Afar. Secretary of State John Kerry has suggested that drone strikes could be utilized to combat the insurgents’ momentum. ‘They're not the whole answer, but they may well be one of the options that are important,’ said Mr Kerry.
The Japanese yen has strengthened against many of its peers on the back of safe-haven buying, pushing USD/JPY down 0.16% to 101.88. Fears that the conflict has the potential to disrupt Iraqi oil supplies pushed US light crude oil futures for July above $107.50 earlier in the session. The price of oil has increased in volatility as the conflict has escalated in Iraq and remains highly responsive to headlines, or the absence of headlines, coming out of the Middle East. The biggest impact for oil would be if the insurgents were able to advance south closer to the major oil fields. Militants took the cities of Mosul and Tikrit last week. Tal Afar, the latest city to fall, is to the west of Mosul and north of Tikrit. Crude oil futures moved back to flat as the trading day wore on.
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