US open: Stocks mixed after manufacturing PMIs

US stocks were mixed on Monday as traders weighed manufacturing data and as expectations of the next interest rate hike by the Federal Reserve faded.

The Dow Jones Industrial Average fell 0.12%, the S&P 500 dropped 0.09% and the Nasdaq rose 0.27% at 1507 BST.

The Institute for Supply Management’s index for US manufacturing fell to 52.5 in July from June’s 53.2, missing expectations for a reading of 53.0 but above the 50 level that separates an expansion from a contraction in sector activity.

The ISM said demand and industrial production slowed in transport and equipment while poor weather affected construction.

In contrast, Markit’s final US manufacturing purchasing managers’ index rose to 52.9 in July from 51.3 in June, in line with the flash reading and analysts’ expectations.

“Janet Yellen will be pleased that the manufacturing numbers are holding somewhere close to June’s high watermark, showing that production in the US is in relatively rude health,” said Dennis de Jong, managing director at UFX.com

“With encouraging job data and a strong dollar adding to the positive outlook for the world’s largest economy, thoughts at the Fed will be back to whether an interest rate rise could now be on the cards.”

It follows Friday’s much weaker-than-expected economic growth figures, which prompted some market participates to scale back forecasts of the next rate increase.

US second-quarter gross domestic product rose an annualised 1.2% compared to 0.8% growth in the first quarter, missing expectations of a 2.6% increase. First-quarter growth was revised down from a previous estimate of 1.1%.

Societe Generale said: “The implied probability of a 25 basis points increase by the Fed by December plummeted to 36% on Friday, from 49% before the FOMC meeting last Wednesday. Was this all due to the 2Q GDP report in the rear view mirror? That looks exaggerated to us, and with month-end flows behind us, we caution against a reversal this week of last Friday’s move.”

However, New York Federal Reserve president William Dudley said at a central bankers’ conference in Bali that markets should not rule out a rate hike this year.

He said market participants might not be giving sufficient weight to the possibility that economic growth might outperform policymakers’ expectations.

Indeed, financial conditions might ease or the risks from Brexit and international developments fade away, he said.

"If such events were to occur, this might necessitate a faster pace of adjustment. For these reasons, I think it is premature to rule out further monetary policy tightening this year," Dudley said.

In corporate news, Tesla Motors shares fell as it said it had reached a deal to buy SolarCity for about $2.6bn. Shares in SolarCity were also in the red.

Google parent company Alphabet gained as it teamed up with GlaxoSmithKline to develop bioelectronic medicines, treatments that use miniature electronic devices to modify how electrical impulses are transmitted around the nervous system.

Verizon Communications edged lower as it said it has entered into a deal to buy Fleetmatics Group.