US equities have been on a roller-coaster ride this afternoon, as a euphoric relief rally on hopes of a debt-ceiling deal vanished following the release of a rather dreadful ISM manufacturing index reading for July.
US equities erased all early gains this afternoon. By 3.30pm (London time) the S&P 500 dropped 0.54% to 1285.28 and the Dow Jones fell 0.35% to 12,196.02, which were both up shortly after hitting an intraday low of 1280.37 and 12,039.63 respectively.
In London, the FTSE 100 went sharply into reverse, surrendering all of its advances from this morning to hit a low of 5767.06.
Debt-ceiling deal reached
US stocks rose sharply on opening as a debt-ceiling deal agreed by US Congressional leaders late Sunday night sparked a global relief rally in equities and other risky assets.
The Dow Jones gained over 1% to 12,282.42 and the S&P 500 soared to 1307.38 in early trading, reversing some of last week's steep losses.
The Dow Jones had suffered its biggest weekly-point loss since May 2010 last week as spread betting investors became increasingly anxious that Washington had run out of time to engineer a debt agreement and would default.
The deal reached last night helps the government avoid default, but it also sets the stage for months of more debate over how Washington taxes and spends.
Markets will pay close attention this afternoon to a vote expected on the deal in the House of Representatives and Senate, which plans to cut at least $2.4 trillion over ten years and raise the borrowing limit through 2013.
Global markets showed signs of relief on Monday after becoming unnerved in recent days by the bitter deadlock in Washington.
But with the clock ticking away to the Tuesday deadline, there is a general feeling that the legislation would be approved and sent to the US president for his signature to finally close out a rancorous debate that left both sides at an uncomfortable impasse.
While the deal means that the United States is unlikely to default, it is far from certain whether the plan agreed by the White House and lawmakers goes far enough in reducing the deficit to appease credit ratings agencies, which have threatened to strip America of its coveted AAA rating.
US economic data starts to turn ugly
This afternoon the Institute for Supply Management (ISM) released disappointing data, which saw global stock markets give up their morning gains.
The ISM manufacturing gauge in July dropped 4.4 points to 50.9 in July from 55.3 the prior month. This shocked indices spread betting investors and turned market sentiment away from risk appetite, as economists had initially projected the gauge to drop to 54.5.
Every single sub-index in the ISM report fell, with new orders, backlogs and customer inventories all below the 50 mark that separates expansion from contraction. The biggest drops were in the prices and employment indices, showing that employment continues to deteriorate and inflationary pressure may be beginning to abate.
Manufacturing indices data released today from Asia and Europe also fell last month, as demand weakened and the global recovery from recession lost momentum.
US car sales likely to show a stall tomorrow
Tomorrow, a further release of data from the US could easily disappoint markets and push investors away from risky assets. Light-vehicle deliveries in July may show that the car industry lost 1.5 million in projected sales in 2011.
Any additional data due to be released could likely show that the US economy isn’t picking up as fast as anticipated, if results will fall short of expectations.
ADP employment change and ISM non-manufacturing data will be released on Wednesday and non-farm payrolls data on Friday. Economists forecast non-farm payrolls to be 91,000, following last month’s abysmal non-farm payrolls data, which came in at 18,000.
Debt vote tonight
The US Congress is expected to vote on the current debt-ceiling deal at 7pm (London time), however this could easily be pushed back, or even delayed into tomorrow, if the events of last Thursday (when the House failed to get around to voting on a Republican debt plan) repeat themselves.
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'US Debt Ceiling Deadlock Sends Dow Spread Betting Market Plummeting', Article by IG Index, last update: 1-Aug-11
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