Stocks have fallen on Wall Street today as a negative mood pervades following yesterday’s surprisingly large downward revision to first-quarter GDP and as lackluster consumer spending data for May erodes hopes for a strong bounce back in the second quarter.
By Peter Martin
Friday, June 27, 2014
Q1 US GDP caused a shock on the downside yesterday, amended down to a 2.9% contraction from the previously-estimated 1.0%, as the true extent of the harm caused to the economy by this winter’s bad weather became apparent. Market reaction had an air of damage limitation to it yesterday, with an undimmed expectancy for growth to snap back in the second quarter, but that all changed this morning with the release of some insipid consumer spending figures for last month.
Analysts were hurriedly slashing their second-quarter growth forecasts as personal consumption expenditure data from the Bureau Economic Analysis (BEA) showed an increase of just 0.2% in May, compared with a consensus estimate of 0.4%. The PCE price index, meanwhile, inched up to a year-on-year change of 1.8% from 1.6% in April, and now is within touching distance of the Fed’s 2% target, potentially creating a headache for the central bank of how best to tackle sluggish growth alongside rising inflation.
The latest jobless claims data did little to change the big picture for the labor market. Initial jobless claims fell 2000 to 312,000 last week, though the prior week was upwardly-revised by 2000. That means the four-week moving average creeps up to 314,250 from the previous week’s 312,500; this measure has been holding fairly steady for the past few weeks. In afternoon trading in New York, the Dow Jones Industrial Average was down 0.23% or 38 points, while the S&P500 fell the same amount proportionally, dropping to 1955.0. Losses had been much steeper earlier in the session, with the DJIA off by well over 100 points at one point.
Other issues hampering the stock market include some hawkish comments from James Bullard, the President of the St Louis Fed, and a slide in financial shares in the wake of the New York attorney general filing a fraud suit against Barclays. Mr Bullard, a non-voting member of the FOMC this year, was quick to label the huge contraction in Q1 GDP as ‘an aberration’ and said he was not too concerned by inflation, though he predicts it will move higher by 2015. Most notably, he told Fox Business Network that he thinks rates could rise as soon as the first quarter of next year. ‘The Fed is closer to its goal than many people appreciate,’ he said. ‘We’re really pretty close to normal.’
Shares in Barclays closed down more than 6% in London in response to a lawsuit filed by the New York attorney general which relates to the bank’s dark pool trading operations. ‘The facts alleged in our complaint show that Barclays demonstrated a disturbing disregard for its investors in a systematic pattern of fraud and deceit’ said New York attorney general Eric Schneiderman. There has been a broad defensive response by investors, leading to many banking shares trading lower. Dow components JP Morgan and Goldman Sachs slid more than 3%, while Wells Fargo fell 0.56%.
The PCE data showing restrained spending despite rising incomes has weighed on the dollar, while the day’s risk-of mood has benefitted the safe-haven Japanese yen. USD/JPY was down 0.19% at 101.67 by mid-afternoon in New York.
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