US stock market momentum continues

The rally in US shares has stretched on today, putting the Dow on track for its third successive record close.

By early afternoon in New York, the Dow had gained 0.29% or 45 points to 15,922, remaining close to the intraday record high of 15,932.65 set earlier in the session. The S&P 500 rose 0.17% to 1793.7, also setting a fresh intraday high earlier.

The market was reassured yesterday by prospective Fed chair Janet Yellen; among her numerous comments backing stimulus, her suggestion that if you looked at share prices measured against traditional valuations ‘you would not see stock prices in territory that suggests bubble-like conditions’ seemed to particularly refuted any notion that the Fed might be soon forced to scale back stimulus.

Her reiteration of the Fed's decision being contingent on economic data (saying the Fed sought evidence of ‘growth that's strong enough to promote continued progress’) goes hand in hand with today’s underwhelming economic indicators to suggest stimulus might still be in place for some extended period of time.

The Fed has key concerns of employment and inflation, and today’s US import and export price report suggests global price pressures are cooling, which could be reflected in CPI data (released next Wednesday). Export prices fell 0.5% in October, while import prices dropped an even sharper 0.7%. Year-on-year that takes import prices down 2.0%.

The New York Fed’s Empire State manufacturing survey has plunged to a level of -2.21 this month, the first time since before the summer that this indicator has shown a negative reading. With new orders in negative territory as well as the headline rate, we may see weakness continue next month.

Nationwide things look a little more promising, with the manufacturing component of the Fed’s monthly industrial production report showing a 0.3% rise in October. The headline industrial production index dropped 0.1% though, undershooting expectations for a 0.1% gain, while capacity utilisation slid to 78.1% from 78.3% in September. It’s worth bearing in mind that this report may have been skewed by the government shutdown.

The weakness of today’s data, and the prospect of continued stimulus, has pressured the US dollar, leading to broad declines. EUR/USD climbed 0.2% to 1.3486, while cable rose 0.24% to 1.6104.

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