While you were sleeping: Stocks sink, US Treasuries rise

Thursday 2nd October 2014

Stocks on both sides of the Atlantic dropped, while US Treasuries climbed after a disappointing report on US manufacturing and further signs of economic malaise in the euro zone.

In late afternoon trading in New York, the Dow Jones Industrial Average sank 1.25 percent, the Standard & Poor’s 500 Index dropped 1.22 percent and the Nasdaq Composite Index retreated 1.53 percent. US Treasuries gained, with yields on the 10-year bond dropping 8 basis points to 2.41 percent.

The US Federal Reserve is on target to end its monthly bond-buying program, currently at US$15 billion, in October.

“You’ve got a whole bunch of geopolitical situations and you have concerns about economic weakness,” Randy Bateman, chief investment officer of Huntington Asset Advisors, told Bloomberg News. “We’ve always relied on the Fed priming the pump. This is the month the pump dries up so now people are focused on these other issues.”

Slides in shares of Johnson & Johnson and those of DuPont, down 2.3 percent and 2.2 percent respectively, paced the decline in the Dow.

The latest US economic data were mixed. The Institute for Supply Management’s index dropped to 56.6 in September, down from 59 in August, while an ADP Research Institute report showed companies added 213,000 workers in September, up from a revised 202,000 in August.

Shares of Lakeland Industries jumped, last up 24 percent, as did those of Alpha Pro Tech, last up 10 percent, after the first Ebola diagnosis in the US. The companies make safety workwear, protective clothing, and other infection control products.

Shares of Sarepta Therapeutics, which researching its own Ebola treatment, also gained. The stocks was last up 4.7 percent.

In Europe, the Stoxx 600 ended the session with a 0.8 percent decline from the previous close. The UK’s FTSE 100 Index and Germany’s DAX both fell 1 percent, while France’s CAC 40 shed 1.2 percent.

The latest economic data offered more cause for concern. Markit's euro-zone manufacturing PMI dropped to the lowest level in 14 months in September. Manufacturing shrank in Germany, France, Austria and Greece, according to Markit Economics data.

“September’s eurozone PMI makes for gloomy reading," Chris Williamson, chief economist at Markit, said in a statement. "The euro area’s manufacturing economy has lost the growth momentum seen earlier in the year, lurching closer to stagnation."

Meanwhile, the Italian government said the country’s economy will contract 0.3 percent this year, compared with its April forecast for 0.8 percent growth. It also downgraded its forecast for 2015 GDP growth to 0.6 percent, down a previous estimate of 1.3 percent.

All eyes are on Thursday’s gathering of European Central Bank policy makers.

While ECB President Mario Draghi pledged to start a program this month to buy asset-backed securities and covered bonds, initial transactions in those markets will probably be modest, Bloomberg News reported, citing two euro-zone central bank officials who asked not to be identified because the matter is private.

BusinessDesk.co.nz

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