Following on from last week’s net losses for the major US stock index benchmarks, there has been an element of caution influencing the trading on Wall Street this Monday.
By Peter Martin
Monday, May 19, 2014
By early afternoon in New York, the Dow Jones Industrial Average was unchanged at 16,491, while he S&P500 index was up just 0.25% at 1882.5. The DJIA spent the first part of the morning in the red before venturing into positive session before midday. Both indices are broadly following the characteristics displayed over the last few weeks of a fair amount of chop without any clear direction. Notably, internet and small-cap stocks bounced on Monday, helping the NASDAQ 100 climb 0.69% or 25 points to 3612.0. Dow component Pfizer rose 0.91% after AstraZeneca rejected the company’s latest offer, which had been sweetened to the tune of $117 billion. Pfizer CEO Ian Read said in a statement, ‘Following a conversation with AstraZeneca earlier today, we do not believe that the AstraZeneca board is currently prepared to recommend a deal at a reasonable price.’ Fellow Dow component AT&T fell 1.8% after launched a huge takeover bid for digital television entertainment provider DirecTV.
Domestically it has been a slow day for macroeconomic releases, with the economic calendar for Tuesday looking similarly sparse. At a more granular level, though, home improvement retailer and Dow component Home Depot reports quarterly earnings on Tuesday, as we start to approach the end of the earnings season. More than 90% of the S&P 500 companies have reported for this earnings season so far, with around three quarters of those having beaten earnings expectations.
We heard from several members of the Federal Reserve last week, including centrist James Bullard, the head of the St Louis Fed, who said in a speech on Friday that he sees the US economy closer to Fed targets than at any point in the last five years, making the Fed ‘a lot closer to its goals than people appreciate’. Mr Bullard, who is not voting member of the FOMC this year, portrayed the weak first quarter GDP data as being a temporary glitch, saying ‘Growth in coming quarters is still predicted to be robust.’ Fed Chief Janet Yellen also spoke toward the end of last week, but sounded a little more dovish, saying ‘Although we have come far, it is also true that we have further to go to achieve a healthy economy.’ We may be able to gauge more about the Fed’s thinking with the release on Wednesday of the minutes from the policy meeting held at the end of April. At that meeting, the FOMC said it had seen ‘sufficient underlying strength in the broader economy to support ongoing improvement in labor market conditions,’ leading to a decision to reduce the central bank’s monthly stimulus by $10 billion to a total of $45 billion in monthly asset purchases.
Caution has not been restricted to the stock market today, with the forex market also showing evidence of risk aversion. The safe-haven asset of the Japanese yen has strengthened, with USD/JPY falling 0.2% to Y101.30, after earlier touching a three-month low of Y101.10. Heightened geopolitical risk has helped support the price of crude oil, with fears that global events could disrupt oil supplies. Nato said it sees no sign of Russian pulling troops back from the Ukrainian borders, while many foreign companies are reported to be removing their employees from Libya after gunmen attempted to storm the parliament building in Tripoli on Sunday. US crude oil futures for July were 0.2% higher by early afternoon in New York.
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