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Markets ended modestly lower yesterday after the central bank announced no new economic measures. Separately, a trading glitch saw over 140 NYSE stocks swinging sharply with unusually high volumes in the first-hour of trading. Economic readings were a mixed bag yesterday with labor market data coming in positive while the U.S. manufacturing sector dropped for the second consecutive time. For now, the concentration will shift to the European Central Bank’s meeting, before nonfarm payroll data is released on Friday.
The Dow Jones Industrial Average (DJI) dropped 0.3% and closed at 12,971.06. The Standard & Poor 500 (S&P 500) edged down 0.3% and finished yesterday’s trading session at 1,375.32. The tech-laden Nasdaq Composite Index closed at 2,920.21, after falling 0.7%. The fear-gauge CBOE Volatility Index (VIX) added a mere 0.2% to settle almost unchanged at 18.96. Total volumes on the New York Stock Exchange soared to roughly 4.3 billion shares, well above the average. Advancers were outnumbered by declining stocks on the NYSE; as for 36% stocks that gained, 59% stocks closed lower.
During the initial hour, volumes of over 140 companies moved to an unusually high level and stock prices swung with high volatility. This was identified as a technological glitch at Knight Capital Group, Inc.’s (NYSE:KCG) market-making unit. The electronic trading firm said the “technology issue” had impacted the routing of shares to the NYSE and urged clients to transfer ‘NYSE-listed orders’ elsewhere. Shares of Knight Capital slumped 32.8%.
NYSE later identified around 150 stocks after its investigation into "irregular trading". Some said the incident brought back tmemories of the ‘Flash Crash’ of 2010. Prominent among the identified companies was Citigroup, Inc. (NYSE:C). NYSE later cancelled the trading of 6 of those stocks. Among them were Wizzard Software Corporation (NYSE MKT:WZE), Quicksilver Resources Inc (NYSE:KWK), China Cord Blood Corp (NYSE:CO), American Reprographics Company (NYSE:ARC) and E-House (China) Holdings Limited (ADR) (NYSE:EJ).
While markets wavered between gains and losses, the benchmarks moved lower for the rest of the session following the release of the FOMC’s statement. Investors were awaiting the outcome of the Federal Reserve Open Market Committee’s meeting, slated to conclude yesterday with hopes of the announcement of a third buyback plan. However, no such announcement was made even though the FOMC said it would keep interest rates low through 2014. Operation Twist will continue till the year end.
Investors’ hopes for a third round of quantitative easing (QE3) have been gaining strength. But they met with a disappointment yet again, reflecting the trend since the second bond buyback plan concluded. These hopes were rekindled following a bagful of dismal economic readings over the past several weeks. Moreover, Federal Reserve Chairman Ben Bernanke had acknowledged the “frustratingly slow” pace of improvement in unemployment in his congressional testimony last month.
However, the central bank did not altogether shut the door on further stimulus measures. According to the statement: “The Committee will closely monitor incoming information on economic and financial developments and will provide additional accommodation as needed.” Also, the central bank noted that the US economy has “decelerated somewhat”, which was a turnaround from its statement in June that the economy was “expanding modestly”.
Overall, economy, economic readings yesterday were a mixed bag. The National Employment Report by Automatic Data Processing (NYSE:ADP) stated that 163,000 jobs were added to the U.S. nonfarm private business sector in July. Coming to the details, “Employment in the private, service-providing sector expanded 148,000 in July after rising a revised 151,000 in June. The private, goods-producing sector added 15,000 jobs in July. Manufacturing employment rose 6,000 this month, following a revised increase of 9,000 in June”.
Meanwhile, Institute for Supply Management said economic activity of the manufacturing sector contracted in July; the second-consecutive month of decline since July 2009. According to the Institute for Supply Management Manufacturing Business Survey Committee: “The PMI registered 49.8 percent, an increase of 0.1 percentage point from June's reading of 49.7 percent, indicating contraction in the manufacturing sector for the second consecutive month, following 34 consecutive months of expansion”. Consensus estimates were eyeing a reading of 50.2.
While the last two trading sessions before Wednesday’s session struggled to provide cheer in the absence of major headlines, yesterday there was sufficient news for the market. Moreover, there will be kept even busier over the next two days. Eyes are now on the ECB meeting, the importance of which increased following ECB President Mario Draghi’s comments last week to do “whatever it takes” to keep the Euro-zone intact. Mario Draghi’s vow will now be put to the test at the ECB meeting as investors await concrete action or at least a plan. Thereafter, the government is due to report nonfarm payroll data on Friday.
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