Morning Market Update May 23: Bernanke Blues

May 23rd, 2013 by

Gold is seeing some safe haven demand this morning as stocks are down, with reports in Asia that the premium for gold bars has hit an all-time high, due to a local shortage of the physical metal.

The specter of the quantitative easing “punchbowl” being taken away, raised by Fed Chairman Ben Bernanke yesterday during Congressional testimony, has caused stock markets worldwide to swoon.

Adding to the downer, the HSBC Chinese flash PMI for May recorded the first contraction in seven months. The reported 49.6, against an expected 50.5, continued the downward trend of April’s reading of 50.4. Analysts were expecting 50.5, as the second quarter is traditionally a strong period for Chinese manufacturing.

The pessimistic news caused markets throughout Asia to go negative, and depressed base commodities. The Nikkei index in Japan dropped 7.3%, the largest one-day correction in two years, as the yen hit a two-week high against the dollar.

The bad news out of China only heightened the sour mood in Europe, which was already depressed over the possibility that the U.S. Fed would stop quantitative easing. European stocks and the common currency both declined, despite the Eurozone Markit PMI improving to 47.5 for May. Yes, it marks 18 straight months of economic contraction, but it is a three-month high for the index, which came in at 47.0 last month.

In the U.S., stocks are poised to continue their downward momentum on the back of the contraction in Chinese PMI. One spot of good news in the U.S. economy is the unemployment numbers. First-time jobless claims last week came in at 340,000 new applications, 23,000 less than the week before. The four-week moving average was 339,500, essentially unchanged from the previous week’s 340,000.

Continuing unemployment claims fell 112,000 to 2.91 million. These numbers do not include those people whose unemployment has run out, or have stopped actively seeking employment.

by David Peterson