US stock markets fell in morning trading as investors took money off the table ahead of Friday’s nonfarm payrolls data.
By Kevin Loane
Thursday, July 31, 2014
By midday EDT, the S&P 500 was down 1.55% to 1939.50, while the Dow Jones Industrials Average fell by a similar percentage to 16,667.67. The day’s session started off on a weak footing as markets considered the prospect of a rise in interest rates. Meanwhile, sentiment also suffered from Argentina’s technical default last night – its second in thirteen years.
Yesterday the Federal Open Market Committee (FOMC) announced a $10 billion taper to its asset purchase program, along with no change to its key policy rate. Both decisions were widely expected. Asset purchases will now run at a pace of $25 billion per month, composed of $15 billion in treasuries and $10 billion in mortgage-backed securities. Under the current trajectory, fresh purchases will come to a halt in October.
There was little to glean from the accompanying statement. Committee members acknowledged the rebound in economic output during the second quarter, and noted a decreasing likelihood of sustained below-target inflation. Both of which may increase the potential for earlier-than-expected policy tightening. Next month’s statement, which will be released along with updated participant forecasts and a press conference by Chair Janet Yellen, should provide further clarity in that regard.
Across the Atlantic, inflation data from the euro area indicated a further easing in price pressure. The ‘flash’ estimate, released by Eurostat, showed that consumer prices rose by 0.4% in the twelve months to July. This was 0.1 percentage points below the consensus forecast and June’s figure. Inflation has now been below 1% for ten straight months. The data come one month after the European Central Bank (ECB) announced a range of measures to boost growth and raise prices, and may increase calls for further policy loosening.
Forex traders reacted with caution. By 11:00 AM in New York, EUR/USD was little changed (-0.06%) and trading at 1.3387. The dollar has gained on the back of impressive economic data in recent weeks, touching ten-month highs against a basket of major currencies earlier today. But dollar longs may pause for a breather ahead of tomorrow’s nonfarm payrolls release, which promises to be the main catalyst in currency markets before the weekend. On that front, weekly jobless claims figures today suggested continued strength. The number of Americans filing for unemployment insurance rose to 302,000 but remained at healthy levels.
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