Stocks on Wall Street eked out small gains on Monday, as investors mulled over signs of a loss of momentum in the US services sector alongside a rise in business confidence in Germany.
By Peter Martin
Tuesday, November 25, 2014
By mid-afternoon in New York, the Dow Jones Industrial Average was up just 0.03% or 6 points at 17,815, while the more broad-based S&P 500 Index was up 0.27% at 2069.6. That leaves the S&P 500 Index on target for another record close, after setting four record closes last week.
With Black Friday looming, there will be a lot of focus on the retail sector this week. A Lundberg survey published over the weekend shows gas prices have dropped to a four-year low, being led down by the falling price of crude oil, and this has raised hopes that consumers will feel more confident about spending in the coming holiday season. Retail bellwether Wal-Mart ($WMT) gained 0.74%, while fellow Dow Jones component Home Depot ($HD) rose 0.27%. Leading online retailer Amazon ($AMZN) gained more than 1%.
Markit Economics’ Purchasing Managers’ Index for the services sector slid to a level of 56.3 in the flash reading for November, compared to 57.3 at mid-month in October and 57.1 at month’s end. Though the index remains well above the threshold level of 50 that separates contraction from growth, this is the fifth successive month in which growth has slowed and this prolonged decline in momentum takes growth in the sector to its lowest level since April of this year. Worryingly, a key factor dragging the index lower is a softening in the level of new business, one of the more forward-looking components in the index. There is some encouragement to be had from a strong upturn in confidence regarding the business outlook, but overall today’s report is likely to erode expectations for next week’s non-manufacturing index form the ISM, as well as moderating hopes for fourth-quarter GDP as a whole.
Euro strengthens on business outlook
News out of Europe today has been more encouraging: the Mannheim-based Ifo Institute reported an unexpected jump in its Business Climate Survey for November. The survey, which seeks to gauge current conditions and business expectations for the German economy, showed improvements in both areas, with economic sentiment rising to 104.7 from 103.2 in October, the current conditions index up to 110.0 from 108.4 and business expectations climbing from 98.3 to 99.7.This is the first increase in the current conditions component since April.
Though these are gains from quite low points, further declines had been expected, and the surprise result has helped to lift the euro today. EUR/USD rose 0.36% to 1.2435. Further support for the share currency came from comments made by Jens Weidman, President of the German Bundesbank and a member of the ECB’s governing council, who suggested there would be legal hurdles should the central bank try to expand its stimulus measures to include purchasing government debt. Last week ECB President Mario Draghi made clear reference to the possibility of buying sovereign debt, but Mr Weidman argued this ‘silver bullet’ may prove difficult. ‘There is a prohibition of monetary financing in the treaties that puts up high legal hurdles, and for good reason,’ he said.
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