There has been some respite today for those worried about the declining price of oil, as US crude futures pushed back towards $50 a barrel, but the rally there has not translated to the stock market, where the ebb and flow of prices have not suggested any noticeable trend in the day’s trading.
By Peter Martin
Tuesday, February 3, 2015
the stock market, where the ebb and flow of prices have not suggested any noticeable trend in the day’s trading. By early afternoon in New York, the Dow Jones was up just 21 points or 0.12% at 17,186, while the S&P 500 Index stepped back 0.07% to 1993.6.
Some slightly discouraging economic releases have contributed to the buying constraint seen on Wall Street, not least a dive in consumer spending at the tail end of last year, dashing hopes that low energy prices would serve to boost discretionary spending. Rubbing salt into the wounds is the fact that this comes alongside swelling personal income: consumer spending declined 0.3% in December (after a 0.5% rise in November), while personal income rose 0.3%. Though lower energy costs failed to boost spending, it did act to drag down prices as a whole: the PCE price index fell 0.2% in December, while remaining flat at the core level that excludes food and energy prices. Looking at things on a basis of year-over-year change, the PCE price index was 0.7% higher in December, slowing considerably from the already-under-target 1.2% recorded for November.
In the FOMC statement issued last week, the Fed acknowledged that inflation is likely to go even lower in the near term, but maintained that it ‘expects inflation to rise gradually toward 2% over the medium term as the labor market improves further and the transitory effects of lower energy prices and other factors dissipate.’ Bearing this in mind, there is unlikely to be any knee-jerk reaction from the Fed, though clearly they will be alert to the dangers of deflation. Certainly this latest inflation data will grant ammunition to those in the Fed arguing for preserving monetary accommodation longer.
Consistent with this line of thinking, the dollar has generally weakened in the FX market today, slipping in value against many of its major peers. AUD/USD rose 0.63% to 0.7815, while EUR/USD climbed 0.54% to 1.1347. The most pronounced of these moves was the gains of the Loonie against the US dollar. USD/CAD plunged more than 1%, with the added effect of the days’ oil strength coming in to play in favor of the Canadian dollar – oil is the most important product in Canada’s export-dependent economy and the country’s currency has waned in recent months alongside the slide in the oil price. With US crude oil futures bouncing back today, though, there has been a noticeable boost to commodity currencies as a whole.
Other data released today included two widely-followed measures of US manufacturing. Markit’s manufacturing PMI came in at 53.9 in the final reading for January, a slight improvement from 53.7 at mid-month and unchanged from December’s final level, but it was the report from the ISM that appeared to impact the market more: the ISM manufacturing index slid to 53.5 last month from 55.1 in the month prior, falling well short of expectations. Weakness was seen in new orders, stemming from soft foreign demand. With the recent strength of the dollar, a quick rebound in this area seems unlikely and this report will keep pre-existing concerns over a slowdown in the manufacturing sector simmering along.
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