Us Indices Concede Gains On Weak Economic Reports
Momentum from Monday’s stock-market rally has not been carried on to the next day, with the major stock index benchmarks conceding their early gains, leading eventually to moderate declines late on Tuesday morning.
By Peter Martin
Tuesday, April 15, 2014 - 00:00
Weaker than expected economic reports also helped undermined some rather decent company earnings announcements.
Dow components Coca-Cola and Johnson & Johnson both reported better-than-expected earnings on Tuesday and enjoyed subsequent advances in their share prices, but this was not enough to stop the overall index sliding into the red; by late morning on Tuesday in New York, the Dow Jones Industrial Average was down 0.22% or 35 points, the S&P 500 index was off by 0.28% at 1825.4, while the NASDAQ 100 slipped nearly 1% to 3442.7. Yahoo and Intel are set to report their quarterly earnings after the close of the stock market on Tuesday afternoon.
The New York Fed’s monthly survey of manufacturers in the Empire State came in at a very disappointing level of 1.29 this month, down from the reading of 5.61 that was seen last month and nowhere near the consensus estimate of 8 given by a Reuters survey of analysts. Especially discouraging is the new orders component, the most forward-looking part of the survey and perhaps the most crucial component of all, which crashed into negative territory with a reading of -2.77. The weakness in this report is significant as there can be no question of poor weather having depressed conditions and this suggests all is not well with the economy, at least as far as New York manufacturing goes.
The other major economic report of the day was the Consumer Price Index for March, which showed signs that inflation may be warming up. The index advanced 0.2% month-on-month both at the headline level and at the core level (that is, excluding the more volatile components of food and energy prices). A 0.1% rise had been expected for both, but year-on-year inflation remains below the Fed’s 2% target, with headline CPI up 1.5% from a year ago and the core rate up 1.6%. There is ammunition here to suit the arguments of both hawks and doves at the Fed, with the former able to say this is evidence that the rate is moving toward target in line with their long-term inflation outlook, while the latter can claim more evidence is required to establish whether this is part of a trend or a temporary blip.
In the forex market, the Australian dollar declined against most commonly-traded currencies following publication of the minutes from the April 1 meeting of the Reserve Bank of Australia. The central bank made no change at the meeting but noted in the minutes that at the time ‘The exchange rate remained high by historical standards,’ adding ‘Despite commodity prices falling further over the past month, the exchange rate had appreciated a little further. While the decline in the exchange rate from its highs a year earlier would assist in achieving balanced growth in the economy, this would be less so than previously expected given the rise in the exchange rate over the past few months.’ While there is no explicit message that the RBA intends to act against the strength of the Aussie dollar, a clear concern has been revealed here about the effect it may be having on growth. AUD/USD fell 0.91% to 0.9337.
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