By Carlos Guillen
Equity markets are having a rather shaky trading session so for today, with the Dow Jones Industrial Average forming what appears as a sine wave from the start of trading today. Clearly, Fed official have been making comments that have been meant to sooth investors' fears of Central Bank tapering, fears that began with Fed Chairman Ben Bernanke's speech last week. And today it was Federal Reserve Governor Jeremy Stein and president of the Richmond Fed Jeffrey Lacker who attempted to bring relief, but things have not gone very well. Mixed economic data released earlier on Chigaco PMI and consumer sentiment have really come together to cause an oscillation on the Dow today.
Early today, Jeremy Stein suggested the central bank's first tapering move could come in September, although he only used the month as a hypothetical start date in a speech to the Council on Foreign Relations. He said that while we have seen very significant increases in long-term Treasury yields since the FOMC meeting, he thinks it is a mistake to infer from these movements that there must have been an equivalently big change in monetary policy fundamentals. Later in the Session Jeffrey Lacker said there is likely to be more market volatility over the outlook for monetary policy in coming months, but these moves shouldn't interfere with a modest economic recovery. These comments, while intended to bring some relief to markets similar to the comments made yesterday, appear to be causing some added uncertainty.
Quite encouraging today was that consumer sentiment landed higher than expected. The University of Michigan's Consumer Sentiment June result landed at 84.1, higher than the Street's expectation of 82.7, decreasing from the 84.5 reached in May. Given the close relation between consumer sentiment and consumer spending, this still elevated level in sentiment may revive hopes that consumption may grow at a faster rate this quarter. Also encouraging was that the index of expectations six-months from now, which more closely projects the direction of consumer spending, rose to 77.8 in June from 75.8 the month before.
Perhaps serving to counter the better than expected sentiment result, data from ISM-Chicago showed that the region unexpectedly expanded less than expected. June Chicago PMI declined to 51.6 from the 58.7 level reached in the prior month, landing above the Street's consensus of 55.5. It should be noted that levels below 50 signify contraction, so the result means that the region's manufacturing industry is still in growth mode after experiencing a glitch in April. So far, overall manufacturing data has been mixed, with Philadelphia and New York regions showing expansion in June; a broader economic measure of manufacturing comes out on Monday, and this should shed more light on direction the manufacturing industry is taking.