The latest data from the Institute for Supply Management on Monday showed a slight slowdown in manufacturing momentum, with the ISM manufacturing PMI reading 60.7 in April, lower than expected and the previous reading. The US 10-year Treasury yield fell below 1.6 per cent and the dollar index fell below 91 after the data were released. Gold accelerated to just below $1,800 an ounce, pulling more than $30 from the session’s low. The three major U.S. stock indexes were mixed, with the Dow up 300 points, or more than 0.8%, and the Nasdaq down 0.3%. This week, markets are paying close attention to Fed Chairman Colin Powell’s speech and the April non-farm payrolls report.
The Institute for Supply Management said on Monday that its manufacturing PMI came in at 60.7 in April, down from 64.7 in March. The figure missed expectations, with consensus expectations for a reading of around 65.0.
“The manufacturing economy continued to expand in April. Investigation committee members reported that their companies and suppliers continued to struggle to meet rising demand because of the Novel Coronavirus’s impact on the supply of parts and materials, “Timothy Fiore, chair of the ISM Manufacturing Survey Committee, said in a report.
“Recent record delivery times, massive shortages of key basic materials, rising commodity prices and difficulties in transporting products continue to affect all sectors of the manufacturing economy. “Worker absenteeism, short downtime due to parts shortages, and the difficulty of filling vacant positions continue to constrain the growth potential of the manufacturing sector.”
Financial website ForexLive commented that the current shortage of electronic products and semiconductors has a huge impact on delivery dates and prices. In addition, prices on most supply lines appear to have generally risen.
Separate data released earlier showed the final U.S. manufacturing PMI reading for April came in at 60.5, slightly worse than expectations of 60.7 from 60.6.
Chris Williamson, chief business economist at market research firm IHS Markit, noted that in April, US manufacturing enjoyed its biggest boom in at least 14 years. Demand surged at a pace not seen in 11 years as recovery hopes grew and new stimulus measures were introduced.
He added: “However, supply chain delays have worsened to the highest levels recorded in the survey, resulting in production bottlenecks for many companies. Consumer-facing businesses have been hit the hardest, with production falling behind order growth by a record amount over the past two months as household spending surged.”
Hopes are high for the April jobs report, due Friday.
Economists say employment is likely to top 1 million in April after a gain of 916, 000 in March. Estimates from economists at Jefferies ranged from about 700,000 to 2.1 million.
The consensus forecast among economists is for the unemployment rate to fall to 5.8% from 6%, with 978,000 new jobs added, according to Dow Jones.
Fed Chairman Jerome Powell said last week that the central bank was still seeking “substantial further progress” toward its economic goals, so the Fed’s speech is also important.
Mr. Powell surprised some investors by emphasizing that the Fed wasn’t close to tapering its bond-buying program. Some bond-market experts had expected the Fed to begin discussing tapering at its June meeting and to begin tapering its $120bn monthly program by the end of the year or early next year.
“The focus next week will be on jobs, because as part of the Fed’s ‘substantive progress,’ we’ll see next Friday how far they can go down that path,” Peter Boockvar, chief investment officer at Bleakley Advisory Group, said last week. The Fed’s mandate is to pursue full employment and a steady pace of inflation, with a 2 percent target.
The payroll numbers are also worth watching, Bart Melek, head of global strategy at TD Securities, told Kitco News. “The payroll numbers are very important. As a rule, any unexpected rise will push inflation expectations higher. That could push down real interest rates, which would be a good catalyst for gold.”
After the ISM data was released, the 10-year Treasury yield broke 1.6 percent and the U.S. index broke the 91 mark, hitting as low as 90.87.
Despite Friday’s weakness, the S&P 500 posted its third straight month of gains in April, rising more than 5% as investors bet on a big economic recovery from the epidemic and a surge in profits.
The Standard & Poor’s 500-stock index is up 11% this year. The benchmark index closed at record levels on Thursday after Apple and Facebook reported better-than-expected results.
The Dow Jones Industrial Average rose about 2.7% last month, and the Nasdaq Composite Index rose 5.4% in April.
Given the old Wall Street adage, ‘Sell in May and go away,’ some investors are expecting a softer month. The slogan calls for risk reduction between May and October, when markets have historically been more prone to sell-offs.
According to Bank of America data going back to 1928, the average and median return from May through October was the lowest of any six-month period of the year, with the S&P 500 rising 66% of the time and averaging a 2.2% return.
After that, the market is likely to be mediocre, the bank notes, especially after a 28 per cent surge between November and April.
“This is just a handful of observations, but after a rally of at least 20% from November to April, average and median returns from May to October are lackey,” Stephen Sutmeier, technical research strategist at Bank of America, said in a note.