Downbeat January Purchasing Managers Index data sent the stock market falling, despite explanation that adverse weather caused the lower readings.
The stock market went into a “selloff” mode on Monday, after the January 2014 Manufacturing ISM Report on Business from the Institute for Supply
Management (ISM) dropped to 51.3 percent from December’s 56.5 percent. Economists were expecting a modest dip to 56.0. Although a reading above 50 indicates expansion, investors were startled by the sharp decline. The United States Gross Domestic Product directly correlates to the ISM PMI data. The drop sparked concern that first quarter GDP could be significantly lower than expected.
Although many commentators were quick to blame the taper of the Federal Reserve’s monthly bond purchases as the reason for the slowdown, the ISM report indicated that “adverse weather conditions” were cited as playing a role in the decline.
Similarly, the final Markit U.S. Manufacturing PMI for January, prepared by Markit Economics, declined to 53.7 from December’s 55.0. Economists were expecting a decline to 53.9. In his Commentary for the report, Markit’s Chief Economist, Chirs Williamson, discussed how the weather played a role in the disappointing reading:
“Survey respondents reported the weakest growth of output and new orders for three months in January, but with many companies blaming exceptionally cold weather for production and supply chain disruptions, the underlying trend looks to have remained robust.
“The ongoing expansion suggests that the goods producing sector is on course to contribute to another quarter of solid economic growth in the first quarter, and is also helping sustain a decent rate of job creation. The survey is broadly consistent with 10,000 jobs being created per month in the manufacturing sector which, added to the signal from the flash services PMI, points to non-farm payroll growth in the region of 200,000 in January.
“The improvement supports the view that the economy is withstanding the ongoing tapering by the Fed. However, it will be important to see the indices bounce back from January’s weather-related weakness to be sure of this resilience.”
The Dow Jones Industrial Average (DIA) lost 326 points to finish Monday’s trading session at 15,372 for a 2.08 percent drop. The S&P 500 (SPY) sank 2.28 percent to close at 1,741.
The Nasdaq 100 (QQQ) fell 2.31 percent, crossing below its 50-day moving average to finish at 3,440. The Russell 2000 (IWM) took a 3.21 percent nosedive to end the day at 1,094.
In other major markets, oil (USO) fell 0.80 percent to close at $34.52.
On London’s ICE Futures Europe Exchange, March futures for Brent crude oil declined 50 cents (0.47 percent) to $105.31/bbl. (BNO).
April gold futures advanced $17.00 (1.37 percent) to $1,256.80 per ounce (GLD).
The transportation sector was in the ditch on Monday, as the Dow Jones Transportation Average sank 3.23 percent to 7,053, crossing below its 50-day moving average of 7,273 (IYT).
In Japan, the exchange rate for the yen continued to be the dominant factor in stock market activity. Japanese stocks sank as the yen strengthened to 102.26 per dollar during the final hour of Monday’s trading session in Tokyo. A stronger yen causes Japanese exports to be less competitively priced in foreign markets (FXY). The Nikkei 225 Stock Average sank 1.98 percent to 14,619 (EWJ). After falling ten percent from its December 30 close at 16,291, the Nikkei 225 has now officially entered a contraction phase.
In China, the stock markets were closed for the Lunar New Year. On Thursday, stocks declined after Markit Economics released the final reading on the HSBC China Manufacturing PMI for January, which indicated a drop to a six-month low of 49.5, a worse result than the flash reading of 49.6. A reading above 50 indicates expansion and a reading below 50 indicates contraction. The Shanghai Composite Index fell 0.82 percent on Thursday to 2,033 (FXI). Hong Kong’s Hang Seng Index declined 0.48 percent on Thursday to 22,035 (EWH).
On February 1, China’s “official” Purchasing Manager’s Index for January was released by the National Bureau of Statistics and China Federation of Logistics and Purchasing. The official PMI fell to 50.5 from December’s 51.0.
In Europe, the Euro STOXX 50 Index made an initial retreat by 0.75 percent, despite the fact that the final Markit Eurozone Manufacturing PMI for January rose to 54.0 from the flash reading of 53.9 and December’s 52.7. After the ISM released its January Manufacturing PMI for the United States, the STOXX 50 made a more significant decline, as investors feared that a manufacturing slowdown in the States would reduce demand for European exports. The Euro STOXX 50 Index sank 1.66 percent to 2,963 – falling further below its 50-day moving average of 3,053. Its Relative Strength Index is 33.73 (FEZ).