U.S. Jobless Claims Drop, Private Sector Sustains Momentum

Arthi Gupta
06 Sep, 2012
New York City

U.S. indexes rose after private sector employment rose in August and jobless claims fell to 365,000. The European Central Bank left key lending rate unchanged and announced a plan to buy unlimited government bonds. Realty Income agreed to acquire American Realty Capital for $2.95 billion.

[R]10:30 AM New York – U.S. indexes rose after private sector employment rose in August and jobless claims fell to 365,000. The European Central Bank left key lending rate unchanged and announced a plan to buy unlimited government bonds. Realty Income agreed to acquire American Realty Capital for $2.95 billion.[/R]

U.S. indexes traded higher after the European Central Bank President Mario Draghi announced a plan to buy unlimited government bonds.

Positive domestic economic data too lifted investor sentiment in early morning trading where private sector employment rose more than estimated in August and jobless claims fell 12,000 to 365,000.

The European Central Bank held its main refinancing rate at 0.75%, the deposit rate at zero and the marginal lending facility rate at 1.5% in the Governing Council meeting in Frankfurt today.

The central bank has increased rates three times since Draghi took office in November and the bank has run out of conventional measures to support the economies of the member nations.

Draghi also said at a conference that the bank is prepared to purchase bonds of member nations to keep the rising yields in the region under check. The widely anticipated move is expected to keep the yields of Spanish and Italian bonds lower and help struggling nations to refinance the debt at a manageable cost.

Separately, the Bank of England policymakers maintained the quantitative easing program at £375 billion and also left the key rate unchanged at 0.5%.

Australia''s jobless rate eased to 5.1% in August from 5.2% in July, according to a report released by the Australian Bureau of Statistics today.

In earnings news, VeriFone forecasted weak fourth quarter after lower-than-estimated third quarter revenues. H&R Block first quarter loss narrowed from last year. General Mills reaffirmed its financial outlook for fiscal year 2013.

U.S. Private Sector Employment Rises

U.S. private sector employment rose more than estimated in August, according to a report released by Automatic Data Processing today.

Employment in the U.S. non-farm private business sector on a seasonally adjusted basis increased 201,000 in August following a revised increase of 173,000 jobs in July.

August month’s increase of 201,000 marks the first month since March where employment gains have exceeded 200,000.

Employment in the private, service-providing sector expanded 185,000 in August, up from 156,000 in July.

U.S. Weekly Jobless Claims Drop

Seasonally adjusted weekly jobless claims for the week ending September 1 decreased 12,000 to 365,000, from the previous week''s revised figure of 377,000.

The 4-week moving average was 371,250, an increase of 250 from the previous week''s revised average of 371,000.

Realty Income to Acquire American Realty Capital

Realty Income Corporation agreed to acquire all of the outstanding shares of American Realty Capital Trust in a transaction valued at around $2.95 billion.

Under the terms of the agreement, American Realty Capital Trust shareholders will receive a fixed exchange ratio of 0.2874 Realty Income shares for each of share of American Realty Capital Trust common stock that they own. Based on Realty Income''s closing stock price of $42.48 on September 5, this would equal to $12.21 per share.

The deal is immediately accretive and is expected to generate approximately $0.20 to $0.22 per share annually.

AIG Proposes Sale of AIA Shares

American International Group, Inc. announced that it commenced a sale in Hong Kong of up to $2 billion worth of ordinary shares of AIA Group Limited.

AIG expects to use the net proceeds for general corporate purposes, which may include share repurchases or other capital management.

Earnings Review

H&R Block, Inc. ((HRB)), the tax preparer said first quarter total revenue declined 4% to $96.47 million from the same quarter last year. Net loss in the quarter narrowed to $107.4 million or 39 cents per diluted share compared to a net loss of $175.1 million or 57 cents per share for the year-ago quarter.

The tax preparer benefitted from the earlier announced cost cutting and reduced the number of locations in Sears to 112 from 500. The company also plans to increase locations at Wal-Mart stores next year but did not give out a number.

The Men''s Wearhouse, Inc. ((MW)), the specialty retailer of men’s suits said second quarter total net sales grew 1% to $662.3 million from the same quarter last year. Net earnings in the quarter rose to $59.4 million or $1.15 per diluted share compared to net earnings of $57.1 million or $1.09 per share for the year-ago quarter.

UTi Worldwide Inc. ((UTIW)), the supply chain services provider reported second quarter revenues declined 10.9% to $1.155 billion. Net income attributable to the company fell to $18.9 million or 18 cents per diluted share compared to $22.9 million or 22 cents per diluted share last year.

VeriFone Systems Inc ((PAY)), the credit card payment terminals maker reported third quarter revenues grew to $489.1 million from $317 million last year. Net profit in the quarter improved to $37.7 million or 34 cents per diluted share from $26.3 million or 28 cents per share in the same period last year.

Walgreen Company ((WAG)), the drugstore chain operator reported sales in August declined 4.5% to $5.85 billion, from $6.12 billion for the same month in fiscal 2011. Sales in comparable stores decreased 8.2% in August.