After breaking records again last week, stocks on Wall Street retreated on Monday, even though the day’s economic news has been supportive
By Peter Martin
Tuesday, June 24, 2014
Markit’s flash reading of its manufacture Purchasing Managers’ Index (PMI) came in at 57.5 for June, an encouraging gain from May’s mid-month level of 56.2 and final reading of 56.4. Regional surveys conducted by the Fed have already hinted at strong expansion in the manufacture sector and this would appear to be confirmed by the data in this report. New orders are picking up pace with a booming level of 61.7 for this component of the index, an improvement of close to 3 full points from May, which bodes well for the direction of output, another component that is above 60. There are modest signs of inflationary pressures in the survey, with both input and output prices creeping higher, but their levels are not yet sufficiently high to cause any major concern.
The other major domestic economic report of the day was existing home sales, which climbed 4.9% to an annualized, seasonally-adjusted rate of 4.89 million in May, beating expectations and following on from the 1.5% gain made in April. That is the first time we have had successive rises for this report in a year, and suggests the housing sector might be warming up again after an extended lull. Given that supply remains tight and prices have continued to rise, this is especially encouraging and gains were broad-based, with sales rising in all regions. Plenty more housing data will become available tomorrow: two separate house price reports for April are released early on Tuesday morning, followed by May’s new home sales figures.
The rebound in existing home sales and the strong manufacturing PMI were not enough to keep Wall Street’s rally going and by early afternoon in New York, the Dow Jones Industrial Average was down 0.18% or 30 points at16,917, fewer than 70 points from the all-time high, while the S&P 500 index slipped 0.15% to 1960.0.
It’s been a quiet day in the forex market, with GBP/USD and EUR/USD both flat on the day in early-afternoon trading. That leaves the pound at 1.7014 against the dollar, near the top end of a range that has held since before 2009. Appetite for the pound has been bolstered this year by the strength of the UK economy and lately by speculation that the Bank of England could be the first of the major central banks to tighten post-global economic crisis. Governor Mark Carney said in a speech earlier this month that a rate hike could happen sooner than the markets expect.
In contrast to the UK and US economies, which continue to show signs of improvement, the eurozone is still struggling with weak growth and the risk of deflation. The flash composite PMI for the eurozone was 52.8 in June, comprising a 51.9 reading for manufacturing and 52.8 for services, all weaker than expected and lower than their respective levels in May. In such a context, the ECB’s decision to introduce a range of stimulus measures earlier this month looks vindicated. Furthermore, the survey’s suggestion that output prices continue to drop, despite a rise in input prices, may spur speculation about further easing by the ECB.
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