5:00 PM EDT :
Late month-and-quarter positioning along with some flight-to-quality spurred by London's failed terror attacks pushed Treasuries higher today while the stock indices gave up their morning gains to finish in the red. In late trading, the 10-Year Treasury Note was up by 18/32, lowering its yield to 5.03%; the Dow was down by 13.66 points to 13,408.62; and the Nasdaq was down by 5.14 points to 2,603.23.
There were cross-currents in today's economic releases. Both personal income and spending rose last month but by less than had been predicted. The rate of construction spending rose more than expected in May but the residential sector continued to sag. The Chicago PMI edged down this month but was still a strong manufacturing indicator. And the Consumer Sentiment Index indicated an increase in optimism from earlier in the month but it was still the weakest final reading in ten months.
The shift into bonds helped to draw some support away from stocks as did another rise in oil prices. The price of a barrel of light, sweet crude oil for August delivery rose by $1.11 on the New York Mercantile Exchange to settle at $70.68, the highest close for a front-month contract since last August 25th. High energy prices act as a brake on the economy by sapping business and consumer spending in other areas.
The stock losses were mild, however. The Dow slipped by 0.10%, the S&P 500 by 0.16%, and the Nasdaq by 0.20%. For the week, all three made small gains: the Dow rising by 0.36%, the S&P 500 by 0.05%, and the Nasdaq by 0.55%. In contrast, Treasuries gained in value this week, pushing the yield of the benchmark 10-Year Note down by 11 basis points (yield moves inversely to price and a basis point is 1/100th of one-percent.
Stocks declined on the month with the Dow down by 1.61% and the S&P 500 down by 1.78%. The Nasdaq was little changed, though, with a nominal loss of just 0.05%. But Treasuries sagged with the 10-Year yield rising by 14 basis points after gaining 27 basis points in May.
Next week's economic calendar starts off with one of the monthly heavyweights, the manufacturing index data for June from the Institute for Supply Management (ISM). In May's release, the index of general business conditions came in at 55.0, up slightly from April's reading of 54.7. Any reading over 50.0 indicates a general expansion in activity relative to the preceding month and while May's reading reflects relatively modest growth, it exceeded forecast estimates and was the highest reading since April of last year. While bullish news is a negative for bonds, a mildly positive detail in the report for both markets was a decline in the prices index from 73 to 71.
On Tuesday, the only major release slated is the report on factory orders for May. The trend in orders provides some insight about demand levels on manufacturing. In April's report, the Commerce Department said that the seasonally adjusted level of new orders rose by 0.3%. The increase was weaker than the 0.6% that analysts had predicted, but that was offset by a revision of March's originally reported increase of 3.5% to 4.0%.
Since Wednesday's durable goods orders report revealed a 2.8% decline in May, a decline in overall orders (durable and nondurable) of 1.0% or more is predicted. Like the report on durable goods, the decline in factory orders is expected to be broad-based with contractions in the ex-transportation and ex-defense categories as well. A decline is also expected in the category of ex-defense capital goods minus aircraft -- a proxy for core business spending.
On Wednesday, the markets and all Federal offices will be closed in observance of Independence Day. On Thursday, the latest jobless claims report might get added attention since it heralds the approach of Friday's monthly employment report. In yesterday's report, the Labor Department said the seasonally adjusted level of initial claims for state unemployment benefits fell by 13,000 last week to 313,000, essentially reversing an increase of 12,000 the week before.
The four-week moving average, which smoothes out some of the short-term volatility, was little changed, rising by 1,000 to 316,000. Despite numerous large swings, the underlying trend has been steady this year with an average weekly claims level of 318,760. Levels below 400,000 suggest that hiring is outpacing layoffs, creating expanding payrolls.
The report said that the level of continuing claims for the week ending June 16 (continuing claims must be at least a week old) fell by 27,000 to 2.490 million. The four-week average rose by 6,750 to 2,505,250. The average weekly level of continuing claims for the year to date is 2,514,708. While this is up from last year's average of 2,458,519, the trend has been relatively stable in the last three months.
Also on Thursday is the ISM's index data on the non-manufacturing, or services, sector of the economy. In May, the index came in at 59.7, up from 56.0 in April and exceeding forecasts for a reading of 55.0%. Like the manufacturing index, readings over 50.0 represent expansions. May's was a fiftieth consecutive growth indicator and the strongest in thirteen months. The data series shows that the sector rebounded in April and May following a four-year low index reading in March of 52.4.
Because the last reading was stronger than expected, forecasters are looking for a modestly weaker reading for June of 58.0. This would still be the second highest index since January. However, the services index does not have the same clout as the manufacturing index because it is relatively young (1997 vs. 1948) and the sector is so broad that varying categories tend to cancel each other out.
The calendar item with the most market-moving potential is Friday's employment report and traders often take defensive positions as the release draws near. In May's report, the Labor Department said the seasonally adjusted level of nonfarm payrolls rose 157,000. This was a forty-fifth consecutive expansion. It also topped projections of a 140,000 increase, though revisions to the preceding two months trimmed their gains by a total of 10,000. For June, the consensus prediction is for a gain of 135,000. The unemployment rate, the portion of the active workforce without jobs, is expected to have remained at 4.5% for a third consecutive month.
10:30 AM EDT :
Treasuries are up this morning as portfolio managers reshuffle their holdings for the month and quarter. The process usually includes the purchase of Treasuries which are used to regulate such portfolio characteristics as yield, risk, and return horizon. The conclusion of the latest Fed meeting is also providing some relief support. And a little safe-haven buying ahead of next week's holiday disruption is adding to this morning's rally. End-of-period sector-shuffling and strong economic data are helping to lift stocks this morning.
The first economic release of the day was mildly bond-friendly; that is, bearish. The Commerce Department said that personal income, the fuel for consumer spending, rose in May by 0.4%. This was a weaker increase than the 0.6% that analysts had predicted. Moreover, April's originally reported decline of 0.1% (the first decline in twenty months) was revised to a 0.2% contraction. The report said that personal consumption expenditures (PCE or consumer spending) rose by 0.5%. This was also a weaker increase than the 0.7% that had been predicted. PCE rose by 0.5% in April as well.
The next release sent mixed signals. In a separate report, the Commerce Department said that the seasonally adjusted, annualized rate of construction spending rose last month by 0.9%, the biggest increase since February of 2006. April's originally reported increase of 0.1% was revised to 0.2%. Although May's increase easily topped analysts' predictions of a 0.2% rise, today's report said that the data series had been revised going back to January of 1993 due to changes in methodology.
The report said that the spending rate in the residential category fell by 0.8% in May. April's originally reported decline of 0.9% was revised to a drop of only 0.3% but March's previously reported decline of 0.9% was revised to a decline of 1.3% and a 1.7% increase in February was revised to a 0.8% decline. According to the new data, the pace in the residential category has fallen in each of the last fifteen months May's rate was the lowest since April of 2004.
The last two reports of the day were bullish. The Chicago branch of the National Association of Purchasing Management (now known nationally as the Institute for Supply Management or ISM) reported this morning that its Purchasing Managers' Index, a gauge of manufacturing activity in the highly-industrialized region, came in at 60.2 this month, down from last month's reading of 61.7. Despite the weaker reading, any over 50.0 reflects a general expansion of activity relative to the preceding month and June's reading exceeded forecasts of 58.0.
Strong readings in the New York and Philadelphia regions suggest that Monday's national index from the ISM will also show a continuing recovery following decelerations last year that ultimately resulted in contraction readings last November and in January of this year.
And the final read on consumer sentiment for the month from the University of Michigan came in at 85.3, up from the preliminary reading, released two weeks ago, of 83.7. Analysts had been expecting little change from the preliminary number. The index was still lower than May's final reading of 88.3. It was also the lowest since last August. News sources say the index of expectations rose to 74.7 from the preliminary 73.0 and the index of current conditions rose to 101.9 from 100.2. These were still lower than last month's respective readings of 77.6 and 105.1.
Trading is expected to thin out as the day progresses and the resulting volatility could result in erratic price moves. Some traders will stay on or close to the sidelines next week since the markets will be closed on Wednesday. The economic calendar is light but it contains the influential ISM Manufacturing Index on Monday and the even more influential employment report on Friday.
There were cross-currents in today's economic releases. Both personal income and spending rose last month but by less than had been predicted. The rate of construction spending rose more than expected in May but the residential sector continued to sag. The Chicago PMI edged down this month but was still a strong manufacturing indicator. And the Consumer Sentiment Index indicated an increase in optimism from earlier in the month but it was still the weakest final reading in ten months.
The shift into bonds helped to draw some support away from stocks as did another rise in oil prices. The price of a barrel of light, sweet crude oil for August delivery rose by $1.11 on the New York Mercantile Exchange to settle at $70.68, the highest close for a front-month contract since last August 25th. High energy prices act as a brake on the economy by sapping business and consumer spending in other areas.
The stock losses were mild, however. The Dow slipped by 0.10%, the S&P 500 by 0.16%, and the Nasdaq by 0.20%. For the week, all three made small gains: the Dow rising by 0.36%, the S&P 500 by 0.05%, and the Nasdaq by 0.55%. In contrast, Treasuries gained in value this week, pushing the yield of the benchmark 10-Year Note down by 11 basis points (yield moves inversely to price and a basis point is 1/100th of one-percent.
Stocks declined on the month with the Dow down by 1.61% and the S&P 500 down by 1.78%. The Nasdaq was little changed, though, with a nominal loss of just 0.05%. But Treasuries sagged with the 10-Year yield rising by 14 basis points after gaining 27 basis points in May.
Next week's economic calendar starts off with one of the monthly heavyweights, the manufacturing index data for June from the Institute for Supply Management (ISM). In May's release, the index of general business conditions came in at 55.0, up slightly from April's reading of 54.7. Any reading over 50.0 indicates a general expansion in activity relative to the preceding month and while May's reading reflects relatively modest growth, it exceeded forecast estimates and was the highest reading since April of last year. While bullish news is a negative for bonds, a mildly positive detail in the report for both markets was a decline in the prices index from 73 to 71.
On Tuesday, the only major release slated is the report on factory orders for May. The trend in orders provides some insight about demand levels on manufacturing. In April's report, the Commerce Department said that the seasonally adjusted level of new orders rose by 0.3%. The increase was weaker than the 0.6% that analysts had predicted, but that was offset by a revision of March's originally reported increase of 3.5% to 4.0%.
Since Wednesday's durable goods orders report revealed a 2.8% decline in May, a decline in overall orders (durable and nondurable) of 1.0% or more is predicted. Like the report on durable goods, the decline in factory orders is expected to be broad-based with contractions in the ex-transportation and ex-defense categories as well. A decline is also expected in the category of ex-defense capital goods minus aircraft -- a proxy for core business spending.
On Wednesday, the markets and all Federal offices will be closed in observance of Independence Day. On Thursday, the latest jobless claims report might get added attention since it heralds the approach of Friday's monthly employment report. In yesterday's report, the Labor Department said the seasonally adjusted level of initial claims for state unemployment benefits fell by 13,000 last week to 313,000, essentially reversing an increase of 12,000 the week before.
The four-week moving average, which smoothes out some of the short-term volatility, was little changed, rising by 1,000 to 316,000. Despite numerous large swings, the underlying trend has been steady this year with an average weekly claims level of 318,760. Levels below 400,000 suggest that hiring is outpacing layoffs, creating expanding payrolls.
The report said that the level of continuing claims for the week ending June 16 (continuing claims must be at least a week old) fell by 27,000 to 2.490 million. The four-week average rose by 6,750 to 2,505,250. The average weekly level of continuing claims for the year to date is 2,514,708. While this is up from last year's average of 2,458,519, the trend has been relatively stable in the last three months.
Also on Thursday is the ISM's index data on the non-manufacturing, or services, sector of the economy. In May, the index came in at 59.7, up from 56.0 in April and exceeding forecasts for a reading of 55.0%. Like the manufacturing index, readings over 50.0 represent expansions. May's was a fiftieth consecutive growth indicator and the strongest in thirteen months. The data series shows that the sector rebounded in April and May following a four-year low index reading in March of 52.4.
Because the last reading was stronger than expected, forecasters are looking for a modestly weaker reading for June of 58.0. This would still be the second highest index since January. However, the services index does not have the same clout as the manufacturing index because it is relatively young (1997 vs. 1948) and the sector is so broad that varying categories tend to cancel each other out.
The calendar item with the most market-moving potential is Friday's employment report and traders often take defensive positions as the release draws near. In May's report, the Labor Department said the seasonally adjusted level of nonfarm payrolls rose 157,000. This was a forty-fifth consecutive expansion. It also topped projections of a 140,000 increase, though revisions to the preceding two months trimmed their gains by a total of 10,000. For June, the consensus prediction is for a gain of 135,000. The unemployment rate, the portion of the active workforce without jobs, is expected to have remained at 4.5% for a third consecutive month.
10:30 AM EDT :
Treasuries are up this morning as portfolio managers reshuffle their holdings for the month and quarter. The process usually includes the purchase of Treasuries which are used to regulate such portfolio characteristics as yield, risk, and return horizon. The conclusion of the latest Fed meeting is also providing some relief support. And a little safe-haven buying ahead of next week's holiday disruption is adding to this morning's rally. End-of-period sector-shuffling and strong economic data are helping to lift stocks this morning.
The first economic release of the day was mildly bond-friendly; that is, bearish. The Commerce Department said that personal income, the fuel for consumer spending, rose in May by 0.4%. This was a weaker increase than the 0.6% that analysts had predicted. Moreover, April's originally reported decline of 0.1% (the first decline in twenty months) was revised to a 0.2% contraction. The report said that personal consumption expenditures (PCE or consumer spending) rose by 0.5%. This was also a weaker increase than the 0.7% that had been predicted. PCE rose by 0.5% in April as well.
The next release sent mixed signals. In a separate report, the Commerce Department said that the seasonally adjusted, annualized rate of construction spending rose last month by 0.9%, the biggest increase since February of 2006. April's originally reported increase of 0.1% was revised to 0.2%. Although May's increase easily topped analysts' predictions of a 0.2% rise, today's report said that the data series had been revised going back to January of 1993 due to changes in methodology.
The report said that the spending rate in the residential category fell by 0.8% in May. April's originally reported decline of 0.9% was revised to a drop of only 0.3% but March's previously reported decline of 0.9% was revised to a decline of 1.3% and a 1.7% increase in February was revised to a 0.8% decline. According to the new data, the pace in the residential category has fallen in each of the last fifteen months May's rate was the lowest since April of 2004.
The last two reports of the day were bullish. The Chicago branch of the National Association of Purchasing Management (now known nationally as the Institute for Supply Management or ISM) reported this morning that its Purchasing Managers' Index, a gauge of manufacturing activity in the highly-industrialized region, came in at 60.2 this month, down from last month's reading of 61.7. Despite the weaker reading, any over 50.0 reflects a general expansion of activity relative to the preceding month and June's reading exceeded forecasts of 58.0.
Strong readings in the New York and Philadelphia regions suggest that Monday's national index from the ISM will also show a continuing recovery following decelerations last year that ultimately resulted in contraction readings last November and in January of this year.
And the final read on consumer sentiment for the month from the University of Michigan came in at 85.3, up from the preliminary reading, released two weeks ago, of 83.7. Analysts had been expecting little change from the preliminary number. The index was still lower than May's final reading of 88.3. It was also the lowest since last August. News sources say the index of expectations rose to 74.7 from the preliminary 73.0 and the index of current conditions rose to 101.9 from 100.2. These were still lower than last month's respective readings of 77.6 and 105.1.
Trading is expected to thin out as the day progresses and the resulting volatility could result in erratic price moves. Some traders will stay on or close to the sidelines next week since the markets will be closed on Wednesday. The economic calendar is light but it contains the influential ISM Manufacturing Index on Monday and the even more influential employment report on Friday.
