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Broadgate: Market News 4/6

4 June 2013

Stocks rose but the U.S. dollar fell on Monday in a volatile session after data showed U.S. manufacturing activity contracted for the first time in six months, raising concerns about the health of the U.S. recovery and the outlook for central bank stimulus.

Markets have become particularly sensitive to U.S. data since the Federal Reserve started to raise the prospect of scaling back its bond-buying program if the economy shows it is on a sustainable growth path.

The Institute for Supply Management reported that its gauge for new orders slipped last month and said there was less demand for exports. The manufacturing data raised doubts about at least a tapering off of Fed stimulus measures, which many in the foreign exchange market were betting on. But stock investors, at least for now, like the idea that the Fed could maintain measures to keep growth on track.

The Nasdaq composite index fell as much as 1 percent at the session trough but later recovered. The Dow industrials rose, however, helped by a 4 percent jump in shares of drug maker Merck & Co. following the results of a melanoma drug study.

Investors were also eying Friday’s monthly U.S. non-farm payrolls data, and analysts cautioned on price swings throughout the week.

“Everything seems to be hinging on what people think the Fed will do with quantitative easing and the bond buybacks that they’re doing. I think that’s the main thing,” said Bryant Evans, portfolio manager at Cozad Asset Management, in Champaign, Illinois.

The Dow Jones industrial average gained 138.46 points, or 0.92 percent, to 15,254.03. The Standard & Poor’s 500 Index was up 9.68 points, or 0.59 percent, at 1,640.42. The Nasdaq Composite Index was up 9.45 points, or 0.27 percent, at 3,465.37.

While Monday’s data was important, the clear focus across financial markets is the U.S. payrolls report for May, which may guide the Fed’s thinking on its monetary stimulus more than any other report.

Wall Street analysts expect 170,000 jobs were added last month, slightly above the 165,000 added in April, according to a Reuters poll.

If the payrolls report is strong, the poor ISM data would be easily forgotten and the dollar would rally, said Alan Ruskin, head of G10 FX strategy at Deutsche Bank in New York. Overall, he believes U.S. employment data will be the determining factor as to whether the Fed will wind down its asset purchase program.

The dollar fell below 100 yen, its lowest level in nearly a month, after the U.S. manufacturing report prompted investors to search for safer havens. It lasted traded at 99.48 yen.

“If this is truly the start of a broader market panic, we believe the Japanese yen may be one of the largest beneficiaries as speculators stampede for the exits,” said David Rodriguez, quantitative strategist at DailyFX in New York.

Markets in Asia and Europe were rattled early in the global session by data showing China’s economy lost steam last month, with factory activity shrinking for the first time in seven months and slower growth in services.

MSCI’s world share index, which tracks stocks in 45 countries, was up 0.1 percent on the back of U.S. gains in late New York trading.

Turkish shares plummeted more than 10 percent after riots across the country. The Istanbul bourse fell to its lowest level since February 26 after several days of anti-government protests.

Earlier, a brighter-than-forecast reading on PMI data from Europe drove a rebound in top European shares, though they fell after the U.S. ISM data. The FTSEurofirst 300 closed down 0.7 percent.

Prices for U.S. 30-year Treasuries mostly traded flat, paring early gains made after the disappointing manufacturing data as investors trimmed bets the Fed might scale back its bond purchases this year.

The 10-year Treasury note last traded 2/32 higher in price with a yield of 2.1229 percent. Prior to the ISM data, it was down as much as 15/32 in price with a yield of 2.187 percent, about 5 basis points below the 13-month-plus peak set last week.

“The overall theme for the coming weeks is going to be a very volatile trading environment, and you are going to have the U.S. and Japan being a significant driver to what is happening in Europe,” said Rabobank strategist Lyn Graham-Taylor in London.

Oil and commodity markets were also volatile. Brent crude oil dipped briefly below $100 a barrel for the first time in a month on worries about demand after the Chinese factory data pointed to slowing momentum in the world’s second-biggest oil consumer.

The losses were outweighed by a problem with the North Sea Buzzard oilfield, and Brentrebounded $1.69 to $102.08.

U.S. oil rose $1.31 to $93.28 a barrel, with the weaker dollar helping support higher oil prices. Oil is priced in dollars and when the dollar sinks, oil becomes less expensive for holders of other currencies.

Gold jumped 2 percent at the peak, hitting its highest in more than two weeks, boosted by the tumbling dollar and U.S. manufacturing data.

Source:  Reuters.com

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