The US stock market finished last week at record highs, and in early trading Monday the Dow Jones Industrial Average and S&P 500 both set new records once again
By Peter Martin
Tuesday, June 3, 2014
Stocks have largely traded within a narrow band though, with fewer than 65 points separating the day’s high and low for the DJIA at the time of writing. Stocks had slid to lows after the Institute for Supply Management (ISM) reported a surprise drop in its May manufacturing index, saying the index had slid from 54.9 to 53.2, short of expectations which had called for a level of 55.5. This proved to be a false alarm, though, with the ISM announcing the initial report was subject to a data error related to seasonal adjustments. The ISM initially amended the index to 56.0 before issuing a second correction, an unprecedented step to my knowledge, to set the May data with a reading of 55.4, more or less in line with expectations.
The components of the index that are subject to seasonal adjustment, including the important forward-looking component of new orders, all were revised higher in the corrections subsequent to the original release, with new orders coming in at a promising 56.9 in May compared to 55.1 in April. The corrected level of the index suggests the pace of growth in the manufacturing sector is accelerating, which agrees with the findings of the other widely-followed gauge of the US manufacturing sector, namely Markit’s manufacturing PMI. That index climbed to 56.2 in the final reading for May, up from 56.2 at mid-month and 55.4 in April. Once again, new orders looked strong at 58.8, while inflationary pressure look contained based on price data in the report, overall suggesting the sector has plenty of momentum currently and should be a plus point for the economy.
Despite the upbeat nature of the manufacturing reports today, there was no meaningful rise in the stock market. By early afternoon in New York, the DJIA was up just 0.07% or 12 points at 16,729, while the broader S&P 500 index had even smaller gains, having risen just 0.01% to 1923.8. We can look forward this week to several reports with the potential to catalyse market movement, though, not least of which is Friday’s employment situation, always an eagerly-awaited indicator.
With stock prices still buoyant and threatening new highs, defensive investments have suffered, particularly gold, which slid 0.46% to $1243.8 per ounce, earlier hitting its lowest level in four months. Silver also declined, falling 0.37% to $18.75 per ounce.
The strength of the two manufacturing reports today has helped boost the dollar, which advanced against most of the commonly-traded currencies, hitting the highest level against the Japanese yen since the middle of last month. EUR/USD fell 0.27% to 1.3598 after data showed German inflation slowed last month. The preliminary May German CPI declined 0.1%, for a year-on-year change of 0.9%. The consensus estimate was for an annual change of 1.1%. With low inflation stated as a prime concern by the European Central Bank (ECB), this evidence of sliding prices in the economic powerhouse of Europe will further stoke speculation that the ECB will introduce further stimulus measures at its policy meeting this Thursday.
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