Tuesday May 3rd


Dow futures drop triple digits on weak China manufacturing data

U.S. stock index futures declined early Tuesday, as the yen continued to strengthen against the U.S. dollar and an indicator of China's manufacturing sector disappointed. Dow futures fell more than 100 points, while S&P and Nasdaq futures dropped 14 points and 30 points, respectively. The China Caixin manufacturing PMI fell to 49.4 last month from March's 49.7, shrinking for a 14th consecutive month and coming in below a Reuters forecast for 49.9. Levels below 50 indicate contraction. Meanwhile, the International Monetary Fund warned in a media briefing of a bumpy economic rebalancing in China and said the "larger spillovers" from its financial markets were a risk to economic growth in Asia. The week is the last busy one for U.S. first-quarter earnings. On Tuesday, there were numbers from Pfizer, Estee Lauder,and Sprint. The day will be light on U.S. data, with auto and truck sales for April the only report of note. Loretta Mester, the president of the Federal Reserve Bank of Cleveland, will speak on a panel at the annual Financial Markets Conference in Florida on Tuesday. Dennis Lockhart, the Fed president of Atlanta, will give the welcoming address. There will also be the latest data on weekly crude oil inventories from the American Petroleum Institute. This may pressure oil prices after reports of rising crude production among OPEC countries. The slide in the U.S. dollar accelerated on Tuesday, falling below 106 against the Japanese yen while the euro was near $1.156. The dollar index against a basket of currencies is at its lowest since January 2015. "For the last six months, U.S. real yields have been falling relative to those in the euro zone and (even more sharply) in Japan. Those real yield moves have been undermining the dollar and as the DXY dollar index broke lower, all the way to levels last seen before the ECB cut rates," Kit Juckes, strategist at Societe Generale, said in a note on Tuesday. "We are going to overshoot from here, and dollar bulls need to see a turnaround in real yields before buying. Shorting EUR/USD at 1.1850 with a stop above 1.20, and buying USD/JPY at 101.50, say with a stop just below 100, may appeal," he later added. The U.S. Federal Reserve could raise rates twice this year but it depends on the underlying strength of the economy, Atlanta Fed President Dennis Lockhart told reporters in a Reuters article Tuesday. He had no firm view on raising rates in June but added there is currently not enough evidence on U.S. economic growth and firming inflation. Asian stocks mostly gained on Tuesday, despite disappointing data from China, with Australia's shares climbing and its dollar falling after the Reserve Bank of Australia cut interest rates unexpectedly. The RBA cut its benchmark rate by 25 basis points to a record low 1.75 percent, noting that inflation data are unexpectedly low and that it is less concerned by the risk low rates pose to the housing market. Hong Kong's Hang Seng Index dropped 1.45 percent by 3:37 p.m. HK/SIN time, extending losses after the disappointing data. But on the mainland, shares extended gains, with the Shanghai Composite tacking on 1.87 percent, or 54.87 points, to end at 2993.20, and the Shenzhen Composite added 2.94 percent, or 55.04 points, to close at 1929.03. South Korea's Kospi index added 0.42 percent, or 8.26 points, to end at 1986.41. Japan's markets were closed Tuesday for the Constitution Day holiday. The Nikkei 225 finished down 3.11 percent on Monday, weighed by a surge in the yen against the dollar. Oil fell on Tuesday, as rising output from the Middle East and North Sea renewed concerns about a global supply overhang. Futures had risen by more than 1 percent earlier on Tuesday as the dollar slipped to an 18-month low against the yen, potentially spurring fuel demand. Brent crude futures were down 25 cents at $45.58 per barrel at 7:23 a.m. ET (1123 GMT). U.S. crude futures were fell 39 cents to $44.39 a barrel. Gold rose to around $1,300-an-ounce on Tuesday as the dollar and European shares fell, triggering further investment in physically-backed gold funds. The metal has rallied around five percent over the past few sessions to a 15-month high on Monday after the Federal Reserve's cautious stance towards higher U.S. rates, as well as a soaring yen, weighed on the dollar. A weaker dollar makes gold cheaper for holders of foreign currencies. Spot gold climbed 0.47 percent to $1,297.16 an ounce, after earlier hitting a session high of $1,302.00. It reached its strongest since January 2015 at $1,303.60 an ounce on Monday.