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On 1 May 2019 - US Stocks move lower as Fed cites 'transitory' factors behind weak inflation

Anne D Picker

Anne D Picker - Econoday

Europe and Asian markets mostly closed for May Day.

US markets

Stocks moved lower following the Federal Reserve's decision to keep its policy outlook unchanged despite easing pressures on inflation. The Dow ended at session lows with a 0.6 percent decline while the S&P lost 0.8 percent and the Nasdaq 0.6 percent.

The Federal Reserve remains on a cautious path waiting to be informed by any significant shifts in incoming data before pivoting to either a lower or higher rate path. Though core inflation is now 4 tenths below the Fed's 2 percent target, Chairman Jerome Powell cited "transitory factors" for the drop, specifically three factors: declines in portfolio management fees (tied to last year's drop in the financial markets) as well as downturns in apparel and airfare prices, all of which he sees as the possibility of reversals. 

Powell and the FOMC see the outlook for economic growth as solid, underpinned by accommodative monetary policy, strong labor demand, rising wages and the fading of special risks including slowdowns in China and Europe, where growth appears to be improving, Brexit, where deadlines have been extended, and U.S.-China trade talks, where progress is being reported.

Apple led the day's company news, posting a strong gain after saying sales in China were leveling. The company said demand for its services and accessories is offsetting declines in iPhone sales. Apple also raised its dividend and announced a new share buyback program. Hilton Worldwide jumped sharply as did drugstore chain CVS Health Corp, both on strong earnings results.

Economic news was mostly downbeat. The ISM manufacturing index came in far below expectations in April at 52.8 for a 2.5 point decline from March and the weakest showing in nearly two years. New orders, at 51.7, fell sharply with related export orders falling below 50 into technical contraction at 49.5. Employment also fell in an unfavorable indication for Friday's factory payroll data. 

In other Wednesday data, construction spending also came in much weaker than expected, down 0.9 percent in March with softness centered in single-family homes. Also released was ADP which sees private payrolls coming in at a robust and much stronger-than-expected 275,000 in Friday's employment report for April. 

These data reflect observations at 4:00 PM US ET. Dated Brent spot crude was down US$0.64 to $72.14 while gold was US$7.20 lower at $1,276.50. The US dollar firmed against the Canadian and Australian dollars as well as against the euro; it was little changed against other major currencies. The yield on the US Treasury 30-year bond fell 3 basis points to 2.91 percent while the yield on the 10-year note was unchanged at 2.51 percent.

European markets

Most markets in Europe were closed for May Day though the London market was open with the FTS down 0.4 percent on the day.

Company news was light but there was economic news, again out of the UK. UK manufacturing slowed in April based on the CIPS PMI which, at a headline 53.1, was a couple of points below March's 13-month high though in line with expectations. The slowing was mainly due to smaller increases in new orders and production as well as a reduction in headcount.

The slowdown in orders reflected softening in the domestic market but also a contraction in overseas demand which fell at the second steepest rate in more than four years.

Asia Pacific Markets

Upbeat bank earnings lifted Australian equities Wednesday while New Zealand shares retreated from recent highs after disappointing jobs data. Other major Asian markets were closed for May Day and other holidays, and activity was muted by caution before news from the Federal Reserve's policy meeting due late Wednesday. Australia's All Ordinaries Index gained 0.7 percent to approach 11-year highs. The New Zealand NZ50 index slipped 0.5 percent as New Zealand reported a drop in payrolls for the first quarter.

Australia and New Zealand Banking Group (ANZ) gained nearly 3 percent on news its profits rose 2 percent in the first half, well above expectations. ANZ's positive surprise boosted financials despite its warning that banking conditions remain challenging. Energy and mining stocks bounced back from a string of losses as oil and other commodities prices rose, led by Woodside Petroleum and Oil Search, and miners Fortescue Metals and BHP Group.

Australia saw mixed purchasing managers data Wednesday. The Commonwealth Bank of Australia/Markit manufacturing PMI fell to 50.9 in April from 52.0 in March, its lowest level in the three-year history of the survey. CBA said the sector was dragged down by lower output and markedly lower order book growth. Employment was stagnant and firms cut back on purchasing activity for the first time since the series inception. The lesser-known Australian Industry Group manufacturing PMI rose to 54.8 in April from 51.0 in March. AIG cited unusual strength in food and beverage manufacturing, and support from a weaker Australian dollar.

New Zealand employment data disappointed as statistics for the three months to March showed weaker employment growth but a small fall in the unemployment rate to 4.2 percent.

The participation rate, at 70.4 percent, fell but remained close to record highs, while wages growth was steady.

Looking forward

India's PMI manufacturing index will be posted Thursday morning as will Hong Kong GDP. European data include German retail sales, Swiss retail sales and manufacturing PMIs from the Eurozone, France and Germany. Also on Thursday, the Bank of England will be issuing a policy statement. US data include productivity and unit labor costs as well as factory orders. 

Global Stock Markets

 

Index

May 1 2019

Daily Change

% Change Daily

North America

United States

Dow

26430.14

-162.77

-0.6

 

NASDAQ

8049.64

-45.75

-0.6

 

S&P 500

2923.73

-22.10

-0.8

Canada

S&P/TSX Comp

16502.75

-77.98

-0.5

Europe

UK

FTSE 100

7385.26

-32.96

-0.4

France

CAC

*

*

*

Germany

XETRA DAX

*

*

*

Italy

MIB

*

*

*

Spain

Ibex 35

*

*

*

Sweden

OMX Stockholm 30

*

*

*

Switzerland

SMI

*

*

*

Asia/Pacific

Australia

All Ordinaries

6466.48

48.10

0.7

Japan

Nikkei 225

*

*

*

 

Topix

*

*

*

Hong Kong

Hang Seng

*

*

*

S. Korea

Kospi

*

*

*

Singapore

STI

*

*

*

China

Shanghai Comp

*

*

*

Taiwan

TAIEX

*

*

*

India

Sensex 30

*

*

*

*Markets closed
Data Source - Haver Analytics

Note: all releases are listed in local time.

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