Traders bought on the dip this morning as Dennis Lockhart, president of the Federal Reserve, stated that poor manufacturing figures show the US economy has not fully recovered, and that for this reason the quantitative easing programme is not likely to be curtailed any time soon. The drop in global equity markets last month was driven by fears that the Federal Reserve might begin tapering its stimulus package, but Mr Lockhart’s comments could help equity benchmarks recoup recent losses.
Overnight, the Reserve Bank of Australia kept interest rates unchanged at 2.75%, which is a record low. This shows the Australian central bank is committed to loose monetary policy, which it hopes will encourage domestic growth.
The UK revealed a construction purchasing managers index (PMI) of 50.8 in May, compared with 49.4 in April. The rise provided a boost to UK equities, as a reading above 50.0 indicates an expansion in the sector.
At 3pm the US will announce the latest IBD/TIPP economic optimism index, and analysts are expecting a reading of 50.2. If we see a higher figure than this, it could spur stocks upwards.