Interest rate cuts in China and the Euro zone and monetary
policy measures by The Bank of England were of no help to the US
markets on Thursday. Investors' fears of lingering global financial
woes and a dismal domestic services sector reading dragged the
benchmarks down. Separately, initial claims showed signs of decline
while the ADP report added more-than-expected jobs. However,
expectations from US nonfarm payrolls, slated for release on
Friday, were anything but optimistic.
The Dow Jones Industrial Average (DJI) slipped 0.4% and closed
at 12,896.67. The Standard & Poor 500 (S&P 500) was down
0.5% and finished yesterday's trading session at 1,367.58. The
tech-laden Nasdaq Composite Index added a negligible 0.03 points to
finish at 2,976.12, close to the level it started the day with. The
fear-gauge CBOE Volatility Index (VIX) moved up 5.0% and settled at
17.50. Volumes were once again low as consolidated volumes on the
New York Stock Exchange, the American Stock Exchange and Nasdaq
amounted to roughly 5.19 billion shares, sharply lower than last
year's daily average of 7.84 billion. Decliners outnumbered
advancing stocks on the NYSE; as for 54% stocks that declined, 42%
stocks moved up.
While domestic investors' hopes for a third round of
quantitative easing remained afloat, central banks in Europe and
China stepped up measures, but both these developments failed to
excite investors. The European Central Bank slashed interest rates
to a record low of 0.75%, while the deposit rate was brought down
to zero. However, the rate-cut action was followed by grim comments
by ECB President Mario Draghi, which weighed on the investors'
minds. Draghi said: "The risks surrounding the economic outlook for
the euro area continue to be on the downside…Beyond the short term,
we expect the euro area economy to recover gradually, although with
momentum dampened by a number of factors. In particular, tensions
in some euro area sovereign debt markets and their impact on credit
conditions".
Separately, in a move aimed at supporting the ailing Chinese
economy, People's Bank of China announced a 31-basis point cut to
the nation's benchmark lending rate, which slipped to 6%. Deposit
rates were also slashed by 25 basis points and declined to 3%. The
Chinese central bank had cut the rates earlier this year as well,
on June 7. Thus, this decision marks the second such cut in two
months. The rate cuts will be effective from Friday. Amidst these
rate cuts, the Bank of England did not follow the same route, but
announced a £50 billion expansion of its quantitative easing
plan.
Despite the actions by these central banks, investors hardly
found any reason for cheer as their fears about global financial
woes remained intact. Mario Draghi's comments, as mentioned
earlier, added to the gloom. Things were not too bright on the home
front either, as economic activity in the non-manufacturing sector
was slower-than-expected and was also at the lowest level since
January 2012. According to the Institute for Supply Management's
Non-Manufacturing Business Survey Committee: "The NMI registered
52.1 percent in June, 1.6 percentage points lower than the 53.7
percent registered in May…The Non-Manufacturing Business Activity
Index registered 51.7 percent, which is 3.9 percentage points lower
than the 55.6 percent reported in May". The growth in NMI also fell
short of consensus estimates of a growth rate of 52.8%.
However, jobs data came in positive yesterday as initial claims
dropped and Automatic Data Processing, Inc.'s (NASDAQ:
ADP
) National Employment Report suggested job additions in June.
Looking at the initial claims data, the U.S. Department of Labor
reported that the advance figure for seasonally adjusted initial
claims dropped to 374,000, down 14,000 from the prior-week's
revised figure of 388,000. The drop was larger than expected, as
consensus estimates expected initial claims to be recorded at
around 385, 000. As for the ADP report, it noted: "Employment in
the U.S. nonfarm private business sector increased by 176,000 from
May to June, on a seasonally adjusted basis. The estimated gain
from April to May was revised up slightly, from the initial
estimate of 133,000 to a revised estimate of 136,000".
Both the jobs reports were positive and they come ahead of
crucial nonfarm payroll data to be released by the U.S. government.
However, while reported figures were better-than-expected, market
analysts are remain wary of the pending nonfarm data. Expectations
are that payroll data would show an addition of 100,000 jobs, up
from 77,000 in April and 69,000 in May. However, the unemployment
rate will still linger around 8.2%, and thus investors did not find
any reason for cheer.
Additionally, yesterday, retail chains came out with their
reports on June sales, which were largely discouraging. These
included the likes of Costco Wholesale Corporation (NASDAQ:
COST
), Target Corporation (NYSE:
TGT
) and The Buckle, Inc. (NYSE:
BKE
) and their shares dropped 0.4%, 1.1% and 3.0%, respectively.
Macy's, Inc. (NYSE:
M
), Kohl's Corporation (NYSE:
KSS
) and The Wet Seal, Inc. (NASDAQ:
WTSLA
) also reported dismal June sales, but their shares gained 2.7%,
6.3% and 4.4%, respectively.
AUTOMATIC DATA (ADP): Free Stock Analysis
Report
BUCKLE INC (BKE): Free Stock Analysis Report
COSTCO WHOLE CP (COST): Free Stock Analysis
Report
KOHLS CORP (KSS): Free Stock Analysis Report
MACYS INC (M): Free Stock Analysis Report
TARGET CORP (TGT): Free Stock Analysis Report
WET SEAL INC -A (WTSLA): Free Stock Analysis
Report
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