Yesterday we saw the Dow Jones Industrial Average climb to a record closing price on Wednesday afternoon, unperturbed by the Fed’s decision to cut back its stimulus by a further $10 billion per month.
By Peter Martin
Thursday, May 1, 2014
But despite this, share prices have largely fallen this morning despite a number of signs of encouragement on the macroeconomic front By mid-morning in New York, the DJIA was down by 0.18% or 29 points at 16,551, while the S&P 500 index was off 0.11% at 1882.0.
The Fed’s decision on Wednesday afternoon to leave the federal funds rate close to zero while trimming its monthly bond purchases by $10 billion to $45 billion was widely expected, but investors took heart in the Federal Open Market Committee’s statement, which noted that ‘growth in economic activity has picked up recently, after having slowed sharply during the winter in part because of adverse weather conditions.’ The Fed also re-iterated its view that ‘it likely will be appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends.’ Economic indicators released on Thursday provide, for the most part, further evidence of a spring bounce. The Commerce Department said that personal income increased 0.5% in March alongside an impressive 0.9% surge in consumer spending. Inflation firmed slightly but remains tepid, with the PCE price index rising 0.2% in March, for a year-on-year change of 1.1%. Though this is a pick up from the 0.9% annual change seen in February, it remains significantly short of the Fed’s 2% target.
Manufacturing appears to be growing solidly according to a pair of widely-followed reports, backing up recent indications from various regional Fed surveys. The final reading for April of Markit’s manufacturing PMI was 55.4, unchanged from the mid-month flash reading, with new orders up in strong growth territory at 58.9. The ISM’s manufacturing index, meanwhile, ticked higher to 54.9 for April, climbing up from the 54.3 seen in March. For both Markit’s PMI and the ISM index, readings above 50 suggest growth, so both reports point to solid expansion in the manufacturing sector. Jobless claims was the gloomiest report released on Thursday, showing a surprise jump in the number of new claims, taking the level up from 330,000 to 344,000 last week. April started well on the labor front, with initial jobless claims as low as 301,000 at the start of the month, but the last few reports paint a picture of weakening, which will likely deflate hopes heading into Friday’s important monthly employment report. A Reuters survey of analysts gives a consensus estimate for non-farm payroll growth of 210,000 for April.
Currency traders appears to have focused more on the jobless claims than other data points this morning, which has dragged on the dollar at times. EUR/USD rose as high as 1.3889 at one point in the trading session, the highest level touched in three weeks, before slipping back to unchanged on the day late in the morning in New York. GBP/USD could make it six straight days of advances today, rising 0.15% to 1.6898 in morning trading, after the UK manufacturing PMI improved to 57.3 in April from 55.8 in March. The currency pair broke well above 1.6900 earlier in the day to hit a fresh four-and-a-half-year high.
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