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Wednesday 21:15 GMT. Fresh evidence of slowing global growth prompted further falls for industrial commodities, US stocks and the dollar, and gains for Treasury bonds, even as the Federal Reserve backed away from previous hints that the pace of its asset purchase programme might be curbed.
The central bank said it was prepared to raise or lower the level of its purchases as economic conditions evolved. It described the economy as expanding moderately but said fiscal policy was “restraining” growth.
The Fed’s announcement came on a day that saw the release of further disappointing economic figures in the US and China.
According to ADP, private sector payrolls increased by 119,000 last month, well below expectations of a reading of 150,000.
Analysts noted that while the report had frequently been out of sync with official statistics, it hardly boded well for this Friday’s non-farm payrolls report.
“ADP isn’t a perfect predictor by any means but we see no reason to believe that substantial job growth above and beyond what we’ve seen of late should be expected,” said Dan Greenhaus, chief global strategist at BTIG.
Furthermore, US construction spending fell 1.7 per cent in March while January’s figure saw a big downward revision, prompting economists to lower their forecasts for first-quarter GDP growth.
Slightly better news came from the Institute for Supply Management, whose index of national manufacturing activity slipped from 51.3 to 50.7 in April, although this was slightly better than many forecasts and still above the 50 level that nominally separates contraction from expansion.
“In all, while still soft relative to the levels seen at the start of the year, this report is stronger than we were expecting given that there were sharper declines across many of the regional manufacturing surveys,” said Barclays.
But the broadly soft tone of the day’s reports – plus, crucially, news of a dip in China’s official manufacturing PMI from 50.7 in March to 50.6 last month – triggered sharp falls for industrial commodities.
“We still expect China to be in a moderate recovery in the coming quarters, but it looks more fragile and weaker than previously expected,” said Flemming Nielsen, analyst at Danske Bank.
Copper fell 3.7 per cent in London to $6,795 a tonne while Brent crude oil settled $2.42 lower at $99.95 a barrel.
Gold, meanwhile, fell $20 to $1,456 as it suffered an interruption to its rebound from a recent two-year low.
Equity trading was thinned by holiday-related closures in many financial centres, including much of Europe. There also appeared a general reluctance to take on new positions before the European Central Bank announces its decision on interest rates on Thursday.
The S&P 500 fell 0.9 per cent from Tuesday’s record high, while the FTSE 100 in London rose 0.3 per cent.
The caution on growth triggered a strong session for US government bonds, with the yield on the 10-year Treasury down 4 basis points at 1.63 per cent, having touched a six-month low of 1.61 per cent
In contrast to other global purchasing managers’ surveys, UK manufacturing data were better than expected, helping to push sterling briefly above $1.56 to a two-month high against the broadly weaker dollar.
Elsewhere in the currency markets, the dollar index was down 0.1 per cent while the euro was up 0.1 per cent and near $1.32 as traders awaited the ECB’s rate decision.
Many analysts believe the central bank will cut borrowing costs, but have argued that such a move would have only a limited impact on eurozone growth.
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