US stocks tumble in early trade

US stocks dropped this morning (May 26th) after the release of weak data on big-ticket manufactured goods the US, as traders return from the Memorial Day holiday in the US.

The Dow Jones Industrial Average fell 0.6 per cent to 18130 after the opening bell. The S&P 500 index lost 0.5 per cent to 2116, while the Nasdaq Composite Index dropped 0.4 per cent to 5069.

A new report showed demand for big-ticket manufactured goods in the US in April fell 0.5 per cent from a month earlier. Economists had expected a more modest decline of 0.1 per cent, according to the Wall Street Journal. Other data showed that home prices increased less than expected in March.

In addition, an updated reading on first-quarter gross domestic product is due later this week, which is expected to show a one per cent decline.

Interest rates hike in the cards for 2015

"This entire week [brings] an important raft of data,” Quincy Krosby, market strategist at Prudential Financial, told the Wall Street Journal. "What investors are watching is whether or not we are pulling out of the downturn in the first quarter that has seeped into data in the second quarter."

Meanwhile, investors reacted to a sharp increase in the dollar, rushing into Treasury bonds. The greenback jumped to an almost eight-year high against the yen at ¥123.04, up from ¥121.56 on Monday.

This morning's slip added to losses from Friday’s session when Federal Reserve Chairwoman Janet Yellen warned that a rate hike is still in the cards for 2015. She said that if the US economy continues to strengthen, “it will be appropriate at some point this year to take the initial step to raise the federal funds rate”.

However, she added: "After we begin raising the federal funds rate, I anticipate that the pace of normalisation is likely to be gradual. The various headwinds that are still restraining the economy, as I said, will likely take some time to fully abate, and the pace of that improvement is highly uncertain. We have no intention of embarking on a pre-set course of increases in the federal funds rate after the initial increase."

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