The US stock market has been confined to a narrow range today, with the Dow Jones meandering within a 60-point channel.
By Peter Martin
Thursday, February 26, 2015
By early afternoon in New York, the Dow Jones was down just 2 points or 0.01% at 18,222, while the S&P 500 was also little changed from yesterday, dropping back 0.11% to 2111.5.
Some sideways movement is no bad thing with stock prices near record levels, and mixed results on the macroeconomic front for the day have failed to provide the impetus to shake the market free of its inertia: growth in orders for durable goods orders was offset by an increase in jobless claims, while a drop in the price of oil has also acted as a drag on risk appetite.
Durable goods orders bounced back in January, increasing a better-than-expected 2.8% following a 3.7% decline in December. Durable goods orders are notoriously volatile, though, which is why more attention is often focussed on the ‘core’ value that excludes the erratic transportation component. There were gains even at this core level, with a 0.3% rise, following a 0.9% fall in the month prior. Taking into account the previous month’s regression and January’s rebound, the overall picture for the manufacturing sector looks a little sluggish, especially when taking into account anecdotal evidence coming from regional surveys conducted by the various Federal Reserve banks.
The Kansas City Fed was the latest such survey to be released, dipping to a level of 1 in February from January’s reading of 3. There were indications of moderate growth for production activity and manufacturing firms retain a positive outlook, but prices continue to show softness.
Softness is also evident for prices at the consumer level according to the Consumer Price Index, which slid 0.7% in January at the headline level, after a 0.3% decline in December. Year on year this takes the change to a deflationary -0.2%, mainly thanks to plummeting energy prices, particularly gasoline. Looking at the core level, which excludes food and energy, prices were up 0.2% on the month, and +1.6% for the change over a year. A rebound in energy prices could change everything very quickly, but the Fed may find its ability to normalize monetary policy impeded should inflation continue on this current trajectory.
Initial jobless claims were surprisingly poor last week, jumping a steep 31,000 to 313,000, which hauls the four-week moving average up to 294,500 from 283,000 in the week prior. This still compares well to how things were looking a month ago though, when the four-week average was well over 300,000. Today’s report was bad news, but its negative effect on expectations for the February employment report will be tempered by the week prior rather than last week being the sample period for the government’s monthly data.
Crude has slipped below $50 a barrel again, as the market continues to digest news of growing US supplies. Data release yesterday by the Energy Department showed US inventories of crude oil 8.4 million barrels higher last week, the seventh consecutive week in which the oil glut has swelled. Light crude oil futures dropped 4.2% to $48.85 a barrel.
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