Us Markets Drop On Stimulus Warning
Share prices in New York suffered steep falls on Tuesday following poor news from some high profile companies and as the head of the Philly Fed warned that the current pace of reduction in the Fed’s stimulus may be too slow.
By Peter Martin
Tuesday, May 20, 2014 - 00:00
Trading on Wall Street got off to a rocky start on Tuesday morning, after construction equipment manufacturer Caterpillar reported in an SEC filing that retails sales of machines for the three-month rolling period to April 2014 were down 25% for Asia/Pacific and 13% globally.Home Depot reported worse-than-expected earnings for its first quarter, with earnings today generally painted a depressing picture for retailers as a whole: Staples and Dick’s Sporting Goods were amongst other retailers that missed forecasts with their quarterly earnings. Shares in Caterpillar sank 3.8%, dragging the Dow Jones Industrial Average down, and the situation was not helped by hawkish comments from Charles Plosser, the President of the Philly Fed in a speech in Washington.
Mr Plosser described a softening in manufacturing activity seen in the February Business Outlook Survey conducted by the Philly Fed as an ‘aberration’ caused by winter weather in the Northeast and other parts of the country, and said that despite some downside risk to growth, he sees ‘the potential for more upside risk to the economic outlook’, and as the Fed moves closer to achieving its inflation and labor market targets, it may require the central bank to hike rates ‘sooner rather than later.’ By early afternoon in New York, stock indices were down substantially, with the DJIA falling 0.96% or 158 points to 16,353, while the S&P 500 dropped 0.76% to 1870.7.
Though it has been another quiet day on the domestic front in terms of macroeconomic reports, there has been a stream of significant global news affecting the forex markets. AUD/USD dropped 0.83% and hit a two-week low after the release of the minutes from the Reserve Bank of Australia’s board meeting held earlier this month. The RBA decided to leave its benchmark cash rate unchanged at 2.5% and the minutes reveal that the central bank considers the current accommodative stance ‘likely to be appropriate for some time yet’. The Bank of Japan started a two-day policy meeting on Tuesday. With no change in policy expected by economist polled by Bloomberg, attention is likely to concentrate on Governor Haruhiko Kuroda’s press conference, which is set to follow the announcement of the policy decision, for any clues on future stimulus or the impact of the recent consumption tax hike. The Japanese yen was supported on Tuesday by the day’s risk-off sentiment, pushing USD/JPY down 0.22% to 1.0127, close to a three-month low.
The British pound strengthened against the US dollar after a report showed UK inflation rising at a faster pace than expected last month. The UK consumer price index increased 0.4% in April, accelerating from March’s 0.2% change, and taking the year-on-year change to 1.8%. Perhaps more significantly, the core rate was up an even steeper 0.5%, for an annual change of 2.0%. While the Bank of England will be looking at a longer-term view rather than just a one-month jump, evidence that inflationary pressures are heating up will increase speculation that policymakers could tighten sooner than previously expected. GBP/USD rose 0.16% by early afternoon in New York.
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