The latest run of economic data out of the US came in largely disappointing market estimates and as a result, the S&P 500 is now showing its biggest monthly declines since the end of the third quarter in 2011. These latest releases included annualized GDP, Business Activity and Initial Jobless Claims, which all came in lower than analyst estimates. Some of the notable decliners in the equities index included Joy Global, TiVo and FaceBook, which dropped nearly 3.5 percent on the day.
The performance seen so far in FaceBook has been one of the biggest stories of the month, with stock valuations dropping 28 percent since the Initial Public Offering (IPO) listing that was created earlier in May. The S&P as a whole dropped nearly 1 percent, to trade near the 1300 level, and this equates to roughly a 6.8 percent decline for the month of May (and is nearly 20 percent below the monthly average). The Dow was able to fare slightly better, with declines of only 0.5 percent but the index is still trading at the lowest levels that have been seen so far this year (on a daily close basis).
For the most part, these significant declines in risk sentiment have stemmed from the fact that so far, the US economy has been viewed as a stabilizing factor, relative to the Eurozone, that is supportive of the global economic recovery. Corporate earnings have been the main positive this year in equity markets and this has been accompanied by moderate but stable figures seen in the macro data releases.
Today’s data is reversing some of that trend, however, with the US Business Activity survey expanding at its lowest rate in over two years and initial jobless claims rising to their highest levels in one month. The major release, however, was the Gross Domestic Product which rose only by 1.9 percent from the January report, which was lower than the 2.2 percent that was expected by market analysts.
As we have explained previously, this is a data heavy week for the US economy and so far most of the figures have missed analyst expectations. This does not bode well for tomorrow’s main event, which will be the Non Farm Payrolls numbers that will be released for May. The general weakness seen so far is leading to forecasted revisions coming in lower, so for the most part we can expect volatility to slow until this release is actually made available.
The USD/CAD is bouncing off of short term support levels now seen at 1.02. This is the key area to watch going forward, as we expect any downside moves to be contained by this level. Longer term we are looking at a symmetrical triangle, with resistance now coming into play at the psychologically significant 1.05 area.
The FTSE 100 is still pressuring some significant long term uptrend lines that can be seen on the daily and weekly charts and the lack of any real bounce here suggests that a downside break is imminent. Resistance is now seen at the cluster of Fibonacci and Historical levels that coincide near the 5400 level, which is an acceptable sell zone.