The Dow Jones Industrial Average staged a remarkable comeback on Monday, recovering from triple-digit losses to achieve a positive finish.
By Peter Martin
Tuesday, May 6, 2014
But the index was once again more than a hundred points in the red on Tuesday morning in New York, coinciding with the fourth anniversary of the ‘Flash Crash’, an event that saw the DJIA plummet hundreds of points in minutes to a near-1000 point loss only to bounce back sharply within half an hour. Weak earnings from insurance giant AIG, which announced a 27% decline in quarterly profit, has contributed to risk-aversion on Wall Street and by late morning in New York the S&P 500 index was down by 0.40% or 7.5 points to 1877.3, while the Dow Jones slipped 102 points or 0.62% to 16,428, with only a handful of its components staying out of the red. One of those few was Disney, which reports for its fiscal second quarter after the close of the market. The late Easter this year is expected to have shifted tens of millions of operating income at Disney’s Parks-and-Resorts segment from Q2 to Q3.
There was widespread weakness in the US dollar on Tuesday, a day ahead of Fed Chief Janet Yellen’s testimony in front of the Joint Economic Committee in Washington. The Australian dollar climbed 0.84% against the US dollar even though the Reserve Bank of Australia’s decided, in the early hours of Tuesday, to maintain its policy cash rate unchanged at a record low of 2.5%. Governor Glenn Stevens struck a more positive tone in his statement than previously though, saying, ‘Growth in the global economy was a bit below trend in 2013, but there are reasonable prospects of a better outcome this year, helped by firmer conditions in the advanced countries.’ He added, ‘Some indicators of business conditions and confidence have improved from a year ago and exports are rising.’
The British pound has made further gains against the dollar today after a measure of the UK services industry exceeded forecasts. The UK services PMI soared to 58.7 in April, the highest level so far this year and above the consensus estimate which had predicted an unchanged level of 57.6. The report indicates high employment and demand, while inflationary pressures remain contained. The strength of the PMIs for manufacturing, construction and now services have all been very strong, pointing to robust growth in UK GDP. While inflation appears to be subdued in the near term, the upbeat nature of today’s report will strengthen the arm of those at the Bank of England’s Monetary Policy Committee pushing for a rate rise. GBP/USD rose 0.65% to1.6976.
The US dollar weakened against its Canadian counterpart despite a surprise drop in the size of Canada’s merchandise trade surplus. The merchandise trade surplus narrowed to C$79 million in March from February’s upwardly-revised level of C$ 847 million (originally reported as C$290 million). A Reuters poll of analysts had pointed to a surplus of C$139million. Bank of Canada Governor Stephen Poloz has been predicting a pick-up in exports for many months, and stressed last month that Canada’s economic recovery depended on a rebalancing from consumer indebtedness towards exports and business investment. The long-awaited growth in exports has still not materialised, however, with exports declining 1.4% in March and energy shipments dropping 7.9% when judged by the dollar value. The volume of exports did increase 0.7%, though, and with the merchandise trade balance staying as a surplus, there will still be a contribution from trade towards GDP growth. USD/CAD fell 0.59% to 1.0892.
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