Financial markets were broadly down ahead of a busy week on the economic and political front. The Federal Reserve meets and its decision, along with the accompanying press conference, will be ‘must watch’ events as traders seek clarity on the future path of interest rates
By Kevin Loane
Monday, September 15, 2014
Meanwhile, Alibaba’s IPO may raise the largest amount on record as investors line up to buy a stake in the Chinese e-commerce giant. Finally in Europe, Scotland’s referendum on independence has the potential to send shivers through international financial markets should the ‘Yes’ camp emerge victorious.
Poor industrial data released fifteen minutes before this session’s opening, led to a reversal of prior gains and the S&P 500 was down 0.12% to 1983.18 after a few minutes of trading. The Dow Jones Industrials Average also suffered, dropping 13.46 points, or 0.08%, to 16.974.05. Nevertheless, US consumers appeared to remain willing and able spenders after figures from Apple showed that it had received 4 million pre-orders for its iPhone 6 and iPhone 6 Plus in the first 24 hours of availability. The figure was double the 2 million recorded in first-day pre-orders for its iPhone 5 range. Apple’s share price rose 0.76% to $102.43 on the news.
On the economic front, official US data for August showed manufacturing activity fell by 0.4% (Consensus: +0.1%), leading to a 0.1% decline in overall industrial production (Consensus: +0.3%) – it was the first drop in seven months. Coming after weak Chinese figures earlier in the day, the data will raise concern about the strength of the global recovery, and further weakness with commodities should be expected. The idea of a global economic slowdown was supported as the Organization for Economic Co-Operation and Development (OECD) as it slashed its growth forecasts for a range of leading economies including the US and Eurozone.
The data came ahead of a crucial FOMC meeting, which will include updated individual member forecasts for unemployment and interest rates. Analysts expect the committee to sanction another $10 billion taper to its asset purchase program before ceasing fresh purchases completely next month. The timing for the first rate hike is less clear, but the consensus remains for a mid-2015 date. The policy decision and member forecasts will be followed by a press conference with Federal Reserve chair Janet Yellen. Traders will no doubt parse her every word in search of further clues.
Despite manufacturing weakness at home, the US dollar exhibited continued strength after posting its ninth consecutive weekly gain on Friday, the longest such streak in seventeen years. The dollar benefitted from safe-haven flows after Chinese industrial production figures pointed to annual growth of +6.9% in August, well below July’s +9.0% number, and the consensus forecast for a +8.7% gain. Skittish investors fled to the dollar with some negative impact on the euro and pound. EUR/USD declined 0.38% to 1.2918. Meanwhile, the British pound languished ahead of Scotland’s referendum on independence which analysts continue to label ‘too close to call’. GBP/USD fell 0.20% to 1.6236.
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