Equities Suffer Sharp Session Losses
The U.S. equity markets closed the trading session decisively to the downside as the Street reacted to some mixed corporate earnings reports and divergent data from the economic front. Treasuries were mostly unchanged and crude oil prices were mixed, while the U.S. dollar and gold traded lower.
The Dow Jones Industrial Average dropped 195 points (1.1%) to 17,841
The S&P 500 Index fell 21 points (1.0%) to 2,106
The Nasdaq Composite tumbled 82 points (1.6%) to 4,941
In moderately heavy volume, 1.1 billion shares were traded on the NYSE and 2.3 billion shares changed hands on the Nasdaq
WTI crude rose $1.05 to $59.63 per barrel, wholesale gasoline was $0.04 higher at $2.05 per gallon
The Bloomberg gold spot price declined $21.07 to $1,183.64 per ounce
The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.4% lower at 94.79
Jobless Claims Fall, Personal Income & Spending Miss
Weekly initial jobless claims dropped by 34,000 to 262,000 last week, well below the 290,000 Bloomberg estimate, as the prior week’s figure was upwardly revised by 1,000 to 296,000. The four-week moving average declined by 1,250 to 283,750, while continuing claims fell 74,000 to 2,253,000, south of the forecasted 2,300,000 level.
Personal income was flat month-over-month in March, versus the forecasted 0.2% gain, while February’s 0.4% rise was un-revised. Personal spending rose 0.4% m/m in March, versus expectations of a 0.5% increase, while February’s 0.1% gain was adjusted to a 0.2% advance. The March savings rate as a percentage of disposable income declined to 5.3% from the downwardly revised 5.7% posted in February. Meanwhile, the PCE Deflator was up 0.2% m/m, matching forecasts, while the prior month’s 0.2% gain was unadjusted. Compared to last year, the deflator was 0.3% higher, below expectations of a 0.4% increase. Excluding food and energy, the PCE Core Index was higher by 0.1%, below forecasts of a 0.2% rise, and the index was 1.3% higher y/y, compared to expectations of a 1.4% gain.
The Chicago Purchasing Managers Index showed growth in Midwest activity snapped a string of two-months of contraction, moving back to a level denoting expansion (above 50) with a rise to 52.3 in April from 46.3 in March, and versus expectations of an improvement to 50.0.
Treasuries were nearly unchanged, with the yield on the 2-year note gaining 1 basis point to 0.57%, while the yields on the 10-year note and the 30-year bond were flat at 2.04% and 2.75%, respectively. Treasury yields have rallied, with bond prices dropping, as of late despite pushed out expectations of a rate hike by the Federal Reserve, which yesterday kept its monetary policy unchanged and removed any date reference as to when a rate liftoff could occur in its statement.
With the Fed noting that soft 1Q economic data reflected “transitory factors,” tomorrow the U.S. economic calendar will bring some fresh data regarding business activity to begin 2Q. The ISM Manufacturing Index is forecasted to show growth accelerated slightly to 52.0 in April from 51.5 in March, while Markit will report its final Manufacturing PMI Index for this month, expected to remain at the preliminary reading of 54.2, but down from the 55.7 level posted in March. Other April reports include: domestic vehicle sales and the University of Michigan Consumer Sentiment Index, with both expected to show modest improvements, while March construction spending will round out the day. U.S. stocks have moved into positive territory for the year, despite continued soft economic data and a relatively weak earnings season so far. Investor skepticism seems to be helping support equities in a contrarian sense; although grinding rather than racing appears to be the current track.
Europe Moves Higher After Yesterday’s Drop
The European equity markets clawed back to finish mostly higher following yesterday’s broad-based drop that came courtesy of a sharp rise in government bond yields in the region. Bond yields have jumped as of late on bearish commentary toward the sector, signs of a relative warming of inflation, and as German debt auctions have seen lackluster demand.
Traders reacted to yesterday’s unchanged Fed monetary policy stance in the U.S., while showing some relative resiliency amid some disappointing earnings reports. Greek stocks rose solidly despite lingering debt deal uncertainty. Encouraging media reports bolstered optimism as they suggested Greece and its Eurozone counterparts are increasing negotiations to try to strike a deal by early next month, when the nation has some key debt payments coming due.
Oil & gas stocks clung to gains as oil prices extended their recent rally. In economic news, Eurozone April core consumer price inflation rose at a pace that matched expectations and Spain’s 1Q GDP growth topped forecasts, while German retail sales unexpectedly fell in March and the nation’s unemployment declined by a smaller amount than expected for April.
Asia Mostly Lower
Stocks in Asia finished lower ahead of tomorrow’s holidays in the region that will have several markets closed, while sentiment was dampened by yesterday’s disappointing U.S. 1Q GDP report and upside volatility in government bond yields for the U.S. and European markets. Also, traders reacted to yesterday’s unchanged monetary policy stance by the U.S. Fed, while today’s Bank of Japan policy decision to keep its stimulus measures unchanged appeared to disappoint.
Japanese equities were lower despite a much smaller-than-expected decline in the nation’s March industrial production. Chinese stocks also moved to the downside amid lingering concerns about the crackdown on margin trading and some caution ahead of tonight’s release of the country’s manufacturing output, which will come as the markets in the nation will be closed. Australian stocks declined amid a lack of conviction ahead of next week’s banking sector earnings reports, while sentiment remained dampened by the volatility in the Australian dollar as expectations of further rate hikes waned.