Jobless Claims Lift U.S. Sentiment; Euro Zone Default Worries

Bikram Pandey
29 Sep, 2011
New York City

U.S. indexes soared after unemployment claims declined below 400,000 and the economic growth was revised higher to 1.3%. The market sentiment was also bolstered after German lawmakers supported the expanded participation in the rescue fund. Commodities gained and oil rebounded.

[R]4:20 PM New York – U.S. indexes soared after unemployment claims declined below 400,000 and the economic growth was revised higher to 1.3%. The market sentiment was also bolstered after German lawmakers supported the expanded participation in the rescue fund. Commodities gained and oil rebounded.[/R]

Investors in New York stepped up to buy stocks after unemployment claims declined and economic growth was revised higher for the second quarter.

U.S. indexes traded higher after weekly jobless claims fell 37,000 to 391,000 and the economy grew more than initially estimated in the second quarter.

Fed Chairman Ben S. Bernanke in a speech highlighted the nation’s high unemployment rate and said it required attention from the White House and Congress.

He further added, “We have had close to 10% unemployment for now for a number of years, and of the people of who are unemployed, about 45% have been unemployed for six months or more. This is unheard of.”

In corporate earnings, Advanced Micro Devices lowered its revenue forecast for the third quarter. AutoZone board authorized the repurchase of additional $750 million of shares. Harleysville agreed to be acquired by Nationwide Mutual Insurance Co. and Mosaic first quarter net earnings surged 77% to $526 million.

At least in trading today, the solid vote in the favor of European rescue fund expansion supported European indexes and the market opening in New York but a chorus of growing but minority of investors are still factoring the eventual Greek that may happen as early as June 2012.

The market enthusiasm was also bolstered before the opening after German lawmakers overwhelmingly passed the proposal to expand the European bailout fund. What reassured markets was the level of support Chancellor Angela Merkel and her party received from the opposition members.

The German vote will allow the nation to increase its participation in the European Financial Stability Facility to €211 billion from €123 billion and expand the rescue fund to provide emergency loans to troubled nations.

German people have been against the setting up of such a facility and expanding and several investors are also worried that no amount of loans to the Southern European nations will solve the expanding sovereign default crisis.

A survey released by Bloomberg news today indicated at least 55% of institutional investors are factoring Greek default or at least one nation leaving the euro zone in the next one year.

The European indexes gained after German lawmakers agreed to expand the bailout fund. Italy sold €7.9 billion of bonds at higher yield but a sharply higher yield. German unemployment decreased to 6.9% in September. Nokia planned to slash 3,500 jobs to align its workforce and operations.

German unemployment declined, European new commercial vehicle sales soared, and Hungarian producer prices fell in August. Euro-zone retail sales dropped for the fifth consecutive month and Spanish inflation rose in September.

The UK indexes traded sideways despite positive developments in Europe. The UK mortgage approvals rose more than estimated and money supply growth slowed in August. However, home prices in the UK rose 0.1% in September.

Commodities, Bonds and Currencies

The 10-year U.S. bond yield closed at 1.99% and 30-year U.S. bond decreased to 3.05%.

The U.S. dollar decreased to $1.359 to one euro and closed higher against the Japanese yen to 76.80 yen.

Immediate delivery futures of Texas crude oil increased $1.37 to $82.59 a barrel and futures of natural gas decreased 0.03 cents to $3.76 per mbtu and gasoline price fell 0.77 cents to 264.30 cents a gallon.

In metals trading, copper decreased 0.60 cents to $3.24 per pound, gold added $3.20 or 0.2% to $1,621.30 per ounce and silver increased $0.55 to $30.68.