A record plunge in new home sales knocked Wall Street lower ahead of tonight’s Federal Reserve interest rate decision.
The health of the US economy showed further signs of weakness today after the US Census Bureau announced that new home sales tumbled by a record 32.7% in May following the expiry of the US government’s incentives.
The latest figure contrasts sharply with consensus estimates, which pointed to an 18.7% decline in new home sales, and follows a drop in existing home sales yesterday. The weak data highlights just how severe the situation really is.
The impression at this juncture is that we may have a long way to go before a sustainable recovery takes hold of the US property market.
Investors are waiting anxiously for the Federal Open Market Committee’s interest rate decision and the accompanying speech tonight.
Investors will be looking for positive signs, and in particular, comments about how the Fed perceives the health of the European economy. Traders have been very sensitive to any negative news so any hint of strains in the US economic outlook is likely to exert pressure on equities worldwide.
By 4.30pm (London time) the Dow Jones Industrial Average was trading at 10273.57, representing a 19.95 decline (-0.19%) from the prior day’s close.
In addition, the broader S+P 500 retreated 5.24 points (-0.48%) to 1090.07 while the tech-heavy Nasdaq 100 slid 9.75 points (-0.52%) to 1870.79.
The slide in equity markets this week puts increasing pressure on leaders at the G20 summit this weekend to restore some confidence in financial markets. Although China’s move on Monday to begin revaluing the Renminbi is step in the right direction, what investors are really waiting to hear are details of how much China will allow the Renminbi to appreciate and in what time frame.
Investors have also become concerned about possible tensions growing between the US and Germany over their differing approaches to fiscal policy. While Obama keeps warning of the dangers of withdrawing stimulus measures too early, Angela Merkel is adamant on pushing forward with austerity measures to reduce Germany’s deficit by €80 billion. Assuming progress is made on these two fronts then we could see renewed risk appetite across equity markets.
Adobe Systems was among the worst performers on Nasdaq 100 and S+P 500, down 5.15% to $31.08 after the software company revised downward their third-quarter revenue forecast from $1 billion to $950 million.
This trails the $962 million median forecast shown in a Bloomberg survey of estimates. The share price fell despite Goldman Sachs and UBS increasing their target estimates today to $46 and $45 respectively.
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