Stocks Beat Retreat After China Quells Stimulus Speculation
Share prices have dropped on Wall Street today, depressed by the Bank of China issuing a statement that would appear to dismiss hopes of further monetary stimulus from the central bank. The slide in the stock market was exacerbated by disappointing US home sales data.
By Peter Martin
Monday, September 22, 2014
By mid-afternoon in New York, the Dow Jones Industrial Average was down 0.45% or 77 points at 17,202 while the S&P 500 index slumped below the 2000 mark, losing 0.89% or 17.9 points to stand at 1992.5. The NASDAQ 100 suffered even bigger losses, plunging 1.23% or 50.3 points to 4049.8.
Risk appetite was in little evidence from the opening in New York, with US stock index benchmarks taking their cue from Asian and European markets and sinking after comments from Finance Minister Lou Jiwei that have been interpreted as ruling out any more stimulus from the Bank of China. Data released earlier this month showed industrial production in China slowing in August to its lowest level since 2008. This had led to speculation that the Chinese central bank would take action to stimulate the country’s economy, but Lou Jiwei’s statement, saying the government would not make drastic changes to economic policy on account of one indicator would seem to stick a pin in that particular balloon. Markit’s flash manufacturing PMI for September is due to be released later this evening and should offer a very timely snapshot of the state of the Chinese economy.
Domestic data released today has not been a source of encouragement for investors, with the Chicago Fed’s National Activity Index (CFNAI) and existing home sales both falling short of expectations. The CFNAI, a weighted average of 85 indicators of national economic activity, tumbled to a level of -0.21 in August from July’s downwardly-revised 0.26 (originally reported as 0.39) and beneath the consensus estimate of 0.35. The index is calibrated to have an average value of zero, which represents the normal growth trend; readings below zero therefore indicate growth below trend. The report draws its data from four main areas (production and income; employment; personal consumption and housing; and sales, orders and inventories) and it is manufacturing in the production category that proved to be the biggest drag in August, while employment was also an area of softness.
Existing home sale, meanwhile, declined 1.8% in August, falling to an annualized pace of 5.05 million from the 5.14 million seen in July, according to a report released by the National Association of Realtors (NAR). The drop in sales follows four successive months of gains, and leaves sales 5.3% lower than they were a year ago. The lower number in August was a result of a drop in the number of all-cash sales, a consequence of rising house prices.
‘As long as solid job growth continues, wages should eventually pick up to steadily improve purchasing power and help fully release the pent-up demand for buying,’ said Lawrence Yun, the chief economist of the NAR.
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