Markets decline on weak economic data and disappointing earnings reports
US stocks recorded their biggest decline in three weeks on Tuesday after an unexpected drop in durable-goods orders and disappointing earnings reports from Microsoft Corp. and Caterpillar Inc. The durable-goods orders fell 3.4% in December instead of a small expected rise. The drop in housing prices contrasts with the jump in Consumer Confidence index in January which recorded its best reading since August 2007. House prices, measured by Case-Shiller 20-city composite index, grew at a slower 4.3% year-over-year pace in November against a 4.5% rise in previous month. Sales of news homes in December rose 11.6%.
The dollar weakened against its main rivals and the ICE US Dollar Index declined 0.76%. The drop in durable-goods orders signals a slowdown in US economic growth. The Federal Open Market Committee two day meeting ends today and the policy statement will be released at 20:00 CET. There will be no press conference by the Fed Chair Jannet Yellen. Market participants don’t think the worsened global outlook will make the Fed delay the planned interest rate hikes and expect the Fed will start raising interest rates in mid-2015.
Investors will be watching closely the Fed’s assessment of the US economy and any changes in the guidance language on when first rate hikes may occur. Since the last Fed statement in December the oil prices have fallen about 20 percent, which has led to upward revision of estimates for US growth this year as lower gasoline prices leave consumers with more money to spend on other things.
European stocks fell following disappointing corporate earnings reports. The Stoxx Europe 600 recorded its first loss in nine sessions. Stocks of industrial giants such Philips NV and Siemens AG plunged 5.9% and 3% respectively as companies missed profit targets. Euro retraced against dollar after the news of surprise drop in US durable-goods orders. Today at 08:00 CET December Import Price Index and February Gfk Consumer Confidence Survey will be released in Germany. The tentative outlook is positive.
Nikkei opened lower and is falling today after it rose 1.7% on Tuesday to its highest close since late December. Investors are taking profits following weak US economic data and disappointing US earnings reports. Yen is trading now in a range ahead of the Fed’s two-day meeting statement today and market participants are waiting for the Fed’s statement to provide further guidance on when the central bank will raise the interest rates. Tomorrow December Retail Sales yoy will be released in Japan. The tentative outlook is positive for the yen.
Oil rose on Tuesday as US dollar weakened after lower than expected US durable-goods orders triggered investor concerns about the growth outlook of US economy. There are no indications major oil producers are taking measures to curb output which would stem the current supply glut while the demand is constrained by slowing global economy. Today at 16:30 CET the US Energy Information Administration will release US crude oil inventories for the week ended January 23, lower than expected inventories may provide support for oil prices.
Gold futures recorded marginal gains on Tuesday as a surprise fall in US durable-goods orders led to equities sell-off and triggered demand for the haven asset. Investors are waiting for the Federal Reserve meeting statement today to provide further direction for market.
Source: ifcmarkets – Markets decline on weak economic data and disappointing earnings reports
