Stocks have begun the week by sinking into the red on Wall Street, with the Dow Jones Industrial Average down 0.51% or 83 point by mid-morning in New York on Monday, while the broader-based S&P 500 index fell at a similar pace, losing 0.48% to stand at 1856.2.
By Peter Martin
Monday, April 7, 2014
This follows on from Friday’s bearish finish in New York after record highs were set early in the session.
It promises to be an interesting week in terms of news flow, with some significant events in the next few days that have the potential to act as catalysts for market volatility. Wednesday will see the publication of the minutes from the March meeting of the Federal open Markets Committee (FOMC) and should offer some insights into how the deliberations went on the short-term direction of US monetary policy, while the first-quarter earnings seasons unofficially kicks off after the closing bell on Tuesday with aluminium company and former Dow component Alcoa, before kicking into high gear for the financial sector with JP Morgan and Wells Fargo on Friday.
Macroeconomic data has been fairly light on Monday though, with the only real release of note for the US economy being Gallup’s measure of consumer spending for March, which remained unchanged from the average daily spend of $87 per person that was seen in February. While this is a high level in comparison to levels seen post-recovery, it does represent a stall in spending growth both month-on-month and year-on-year, and this raises some concerns about the momentum of the economy. Official retail sales are released on Monday of next week, but today’s report may curb expectations for how they will turn out.
In the forex market, the euro gained 0.28% against the US dollar, after comments from two executive board members of the European Central Bank (ECB) served to undermine remarks made by ECB President Mario Draghi last week that suggested further quantitative easing might be on the cards as a way of combatting persistent low inflation in the Eurozone.
Yves Mersch, Governor of the Central Bank of Luxembourg and an executive board member of the ECB, explained on Monday that Mr Draghi’s announcement that QE had been considered was intended to show contingency plans were in place in the case of deflation, meaning ‘We should have a much shorter time lag than would be the case if nothing had been prepared.’ Mr Mersch added that ‘Inflation risks and deflation risks are more or less level in the euro area, which means we don’t see an imminent risk of deflation.’
This view was backed up by Ewald Nowotny, the president of the National Bank of Austria and also a member of the ECB’s executive board. Mr Nowotny pointed out that though headline inflation slipped in March, core inflation has remained more stable and growth in the economy should combat the risk of deflation. ‘I am assuming that the strengthening of the economy that we see in Europe will reduce the problem of deflation’, he said and that there is no immediate need to take steps to counter deflation.
The Bank of Canada published its Business Outlook Survey for the first quarter on Monday morning, and showed some optimism among Canadian businesses, with a sizeable bounce in the number of firms reporting a faster pace of annual sales growth, with a majority of companies expecting to see that trend continuing over the next year. The US dollar eased slightly against its Canadian counterpart following the publication of the report, slipping 0.04% to 1.0977 by late morning in New York.
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