Domestic macroeconomic data has been encouraging today, but has proven to be of little help to the stock market, which has instead been ailed by worries that tensions between Russia and Ukraine may be set to escalate.
By Peter Martin
Tuesday, August 5, 2014
By mid-afternoon in New York, the Dow Jones Industrial Average was down 1.15% or 189 points at 16,379, a pace of losses matched by the S&P 500 index, which slid 1.17% or 22.7 points to 1916.3. Energy stocks were the hardest hit: Halliburton fell 4.43%, Chesapeake Energy shed 2.89% and Dow component Exxon-Mobil (XOM) dropped more than 2%.
The situation in Ukraine has been a significant cause behind the downbeat mood on Wall Street today: fierce fighting is reported by local officials to have broken out as government forces attempt to retake the city of Donetsk from rebel forces, while Poland's foreign minister Radoslaw Sikorski is reported by Bloomberg as suggesting Russia forces are ready to make an incursion into Ukraine.
The S&P tumbled 2.7% last week, and today's heavy losses are adding substantial weight to the downward momentum that has built up recently, though economic indicators have been positive for the most part today.
The latest indications are that the US services sector continues to enjoy strong expansion, with the final services PMI from Markit for July coming in at 60.8. Though this is a slightly lower level than the 61.0 reported mid-month, it is well above the 50-mark that separates growth from contraction and suggests the sector is in good health. Interestingly, inflationary pressures are weak according to the report, which looks at odds with other price gauges.
In a similar vein, the Institutes of Supply Management's non-manufacturing index surged to a reading of 58.7 for July, a recovery high, and a surprisingly large jump of 2.7 points from June's level. New orders, the most forward-looking component in the index, climbed 3.7 points to 64.9, to also set a post-recession high, a factor that bodes well for future gains. Despite the strong gains, the ISM report showed similar agreement to Markit's index in reporting no real inflationary pressures: the prices paid component eased by 0.3 to a relatively moderate level of 60.9.
Factory orders jumped 1.1% in June, appearing to confirm the findings of other indicators that have already suggested strong growth in the manufacturing sector.
The strength in these economic reports have helped the dollar to stay firm against the Japanese yen, which has fared well against other currencies during today's risk-off session by virtue of its standing as a safe-haven, while the euro weakened 0.36% against the dollar.
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