In terms of data, the U.S. economy continues to improve. U.S. manufacturing expanded for the 10th consecutive month in May, and April construction spending also grew at the fastest pace in nearly a decade, suggesting that the U.S. economy will add jobs and weather the European debt storm. The manufacturing index for May declined from 60.4 in April to 59.7, but still surpassed the market expectation of 59.0. Although the manufacturing expansion rate is slightly slower than the previous month, the report indicates a strong foundation in the industry, with the employment sub-index reaching its highest level in six years. Meanwhile, construction spending increased by 2.7% to $869.1 billion in April, marking the highest growth rate since August 2000, while the forecast was for no change.
However, the European economy remains weak. The unemployment rate in the Eurozone increased to 10.1% in April, the highest level since June 1998, with the number of unemployed reaching 15.86 million due to rising unemployment in Spain, Portugal, and Italy, compared to a 10.0% unemployment rate in March. Currently, the fiscal austerity measures introduced by European countries are expected to have a greater impact on employment. Additionally, the final value of the manufacturing Purchasing Managers' Index (PMI) for the Eurozone in May fell from the previous month’s 57.6 to 55.8, indicating weak manufacturing activity, which heightens investor concerns about the economic recovery in the Eurozone.
On the news front, the Reserve Bank of Australia announced that it would maintain the key interest rate at 4.50%, which aligns with general market expectations. The Reserve Bank indicated that the interest rate is near the average level, and current policies are appropriate. It also stated that concerns regarding the creditworthiness of European countries are the focal point of financial market attention, as the overall situation in Europe remains bleak, while economic growth in Asia is very robust and may need to cool in the coming year. North American economic growth is expected to be more stable. The central bank noted that inflation might be at the upper end of the target range in the coming year, as the effects of previously implemented economic expansion policies are waning.
Furthermore, the Bank of Canada raised its benchmark interest rate, becoming the first among the G7 countries to do so following the global economic downturn; however, the central bank stated that, due to the European debt crisis, the timing of the next interest rate adjustment is highly uncertain. The Bank of Canada increased its benchmark interest rate from 0.25% to 0.5% to reflect strong domestic growth over two consecutive quarters. However, it cautioned investors that, due to the fiscal crisis in the Eurozone, global economic recovery remains unstable, hence continuous tightening of policy is unlikely.
In the stock market, despite positive economic data, the developments regarding the Gulf of Mexico oil spill caused significant concern among investors, and U.S. stock markets ultimately declined. The Dow Jones Industrial Average fell by 112.61 points, or 1.11%, closing at 10,024.02 points.
In the bond market, the stock market decline supported safe-haven buying of U.S. Treasuries, while worries about large write-downs at European banks sparked new concerns about the pace of economic recovery. Additionally, strong manufacturing and construction data released in the U.S. did not curb safe-haven buying of Treasuries, leading to an increase in U.S. Treasury prices. The yield on the 10-year Treasury bond was reported at 3.26%.
In the commodities market, fears that the European debt problem may spread, along with data showing a slowdown in China's economic growth, put pressure on the euro and crude oil futures. Oil prices fell, with NYMEX July crude falling by $1.39, or 1.88%, to $72.58 per barrel. However, safe-haven buying reemerged, with COMEX August gold futures rising by $11.90, closing at $1,226.90 per ounce.