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- The Dow Jones fell about 400 points in the midweek session.
- Investors retreated after US PMIs came in largely mixed.
- US manufacturing is expected to slow further, but services PMIs expanded.
The Dow Jones Industrial Average (DJIA) fell more than 400 points on Wednesday after U.S. purchasing managers’ index (PMI) numbers came in broadly mixed, missing expectations. U.S. stock markets fell, but interest rate markets still see a 100% chance of a September rate cut by the Federal Reserve. Federal Reserve (Fed). However, the release of unbalanced economic data should put additional pressure on upcoming calendar prints during the rest of the week.
The US manufacturing PMI fell into contraction territory in July for the first time since January, falling to 49.5 from 51.6 the previous month, beating expectations for a rise to 51.7. Meanwhile, the US services PMI rose to a 26-month high of 56.0 from 55.3 previously and well above the expected decline to 54.4.
The mixed PMI reading did little to support broader market sentiment, sending stocks lower and investors gearing up for more key U.S. data due this week. Gross Domestic Production GDP is expected to rise to 2.0% from 1.4% previously, while the Q2 GDP figure is expected to decline to 2.6% from 3.1% previously.
Friday’s Personal Consumption Expenditures (PCE) price index will be the key data of the week. As the Fed’s preferred method for tracking inflation, a failure to read the core PCE could send investors running for the hills or into more risky bets in hopes of a rate cut. climate forecast The US inflation rate is expected to ease slightly to 2.5% from 2.6%, with the figure expected to hold steady at 0.1% on a monthly basis.
Dow Jones News
About two-thirds of the Dow Jones Industrial Average’s stocks posted losses on Wednesday, led by Intel Corp (INTC), which fell 3.5% to $255.40 a share. On the upside, Verizon Communications Inc (VZ) rose 2.34% to $39.80 a share.
Dow Jones Technical Forecast
The Dow Jones continues to retreat from its all-time high as the index slides towards the 40,000.00 level. The Dow Jones hit a record high of 41,371.38 points last week, but the index is now trading down -3.5% in a short-term pullback.
In the event of an extended pullback, the Dow Jones will challenge the 50-day exponential moving average (EMA) at 39,472.52, with a long-term technical floor pricing in the 200-day EMA at 37,862.50.
Dow Jones 5 Minute Chart
Dow Jones Daily Chart
Frequently Asked Questions About the Federal Reserve
Monetary policy in the United States is shaped by central banks. The central bank has two goals: to stabilize prices and promote full employment. Its primary tool for achieving these goals is adjusting interest rates. When prices rise too quickly and inflation exceeds the central bank’s 2% target, it raises interest rates, which increases borrowing costs across the economy. This causes the value of the U.S. dollar to rise, making the United States a more attractive place for international investors to invest their money. When inflation falls below 2% or unemployment rises to very high levels, the central bank may lower interest rates to encourage borrowing, which weighs on the U.S. dollar.
The Federal Reserve holds eight monetary policy meetings each year, at which the Federal Open Market Committee assesses economic conditions and makes monetary policy decisions. Twelve Fed officials attend FOMC meetings—the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining 11 regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme cases, the Fed may resort to a policy called quantitative easing. Quantitative easing is the process by which the Fed dramatically increases the flow of credit into a faltering financial system. It is a non-standard policy measure used during crises or when inflation is very low. It was the Fed’s weapon of choice during the Great Financial Crisis of 2008. It involves the Fed printing more dollars and using them to buy high-quality bonds from financial institutions. Quantitative easing typically weakens the U.S. dollar.
Quantitative tightening is the reverse process of quantitative easing, where the Fed stops buying bonds from financial institutions and does not reinvest the principal from the maturing bonds it holds to buy new bonds. This is usually positive for the value of the US dollar.
