The release of further upbeat macroeconomic data helped Wall Street open in positive territory this afternoon.

An official report released today revealed that fewer Americans claimed unemployment benefits last week; the number of people claiming first-time benefits (initial jobless claims) fell by 4000 to 621,000 in the week ending May 30, following a revised figure of 625,000 the week before. This is the third consecutive weekly drop and in line with Bloomberg’s forecasts.

The four-week moving average for initial jobless claims, meanwhile, a less volatile measure, rose by 4000 to 631,250. Perhaps more reassuring, however, was the continuing jobless claims data, which showed the number of Americans on payroll benefits for more than one week falling by 15,000 to 6.735 million – the first decline since January.

Also encouraging was the data for first-quarter non-farm productivity, a gauge of employee output per hour, which rose at a 1.6% annualised rate, double than earlier estimates of a 0.8% gain and substantially better than the previous quarter’s drop of 0.6%. Labour costs, meanwhile, increased at a 3% pace after climbing 5.1% at the end of 2008.

Although today’s data shows a slight improvement in the health of the US labour market, the figures are still very weak – it will be very interesting to see whether tomorrow’s non-farm payroll figures point to some form of stabilisation in the ailing American labour market.

According to Bloomberg, tomorrow’s data is likely to show that US employers cut more than 500,000 workers in May, bringing total job losses to 6.2 million since the recession began in December 2007. Moreover, the US unemployment rate is expected to jump to 9.2%.

It may sound rather contradictory for some but, while US data has been pointing to stabilisation in the economy, many US retailers including Costco Wholesale and Hot Topic reported larger-than-expected sales declines in May due to lacklustre consumer spending.

As a result, the market has, consequently, started to treat the so-called green-shoots theory with a little bit of scepticism. Shares in US retailers, were trading lower this afternoon, with Costco Wholesale Corp down 4.78% to $33.44 and Hot Topic 4.6% lower at $7.19. Wal-Mart Stores fell 0.7% to $50.53.

In contrast, energy shares rose after Goldman Sachs lifted its price target on light sweet crude oil from $52 to $75 a barrel. Chevron Corp was up by almost 1% to $68.86 and Exxon Mobil climbed 0.4% to $72.39.

‘The recent rally in WTI prices is likely to be but the first stage in the oil price rally that we expect will accompany a recovery in economic activity. In all, we expect the rally we have just observed to be followed by three more stages, creating a four-stage rally in oil prices in 2009 and 2010,’ the broker said. [1]

Not surprisingly, July light sweet crude oil was up by 3% to $68.11 a barrel, while July Brent crude oil traded 3.2% higher to $68 a barrel following the report.

Also see Crude Oil Spread Betting.

By 3.30pm (London time) the Dow Jones Industrial Average was trading 3.17 points (+0.04%) higher at 8678.45, while the broader S&P 500 had advanced 1.67 points (+0.18%) to 933.43. The Nasdaq, meanwhile, was up by 5.72 points (+0.39%) to 1481.16.

In the UK, the Bank of England today kept interest rates unchanged at a historic low of 0.5% and committee members voted to continue with the existing £125 billion asset purchase programme. The decision to maintain interest rates and press on with the unconventional monetary policy programme was expected, given the recent release of upbeat data in the UK.

It appears as though the central bank is in a ‘wait-and-see’ mode at this juncture, however, and may increase the size of its asset purchase programme if conditions in the wider economy remain weak.

The MPC said in a statement on the BoE website that it will continue to review the scale of its asset purchase programme and that it will take another two months to complete. The minutes of today’s decision will be published at 9.30am (London time) on Wednesday, June 17.

Elsewhere, the European Central Bank also kept interest rates unchanged at a record low of 1% today. In a speech following the rate decision, ECB President Jean Claude Trichet said that ‘current rates are appropriate’ and that economic activity ‘will decline with much less negative rates’ this year – that’s a hawkish way of saying the worst of the economic slump is over.

Mr Trichet also said that the ECB will commence its plan to acquire €60 billion worth of covered bonds, which are essentially debt securities that derive their income from mortgages, in the primary and secondary markets, next month.

Back home, the FTSE was trading 5.29 points lower (-0.12%) at 4378.13 after a strong bout of selling pressure hit the mining sector.

Rio Tinto was the biggest causality in the sector, plunging 7% to 2706p after the FT reported that Chinalco is set to walk away from a $19.5 billion deal with the company.

It appears the two failed to reach an agreement about a $7.2 billion convertible bond issue – apparently a key part of the proposed deal. According to the FT, a statement confirming this development could be issued at 8pm (London time) today.

It is also being reported that Rio is now exploring a number of alternatives, including a $12 billion rights issue and creating a joint venture with rival BHP Billiton which would include stakes in eight assets that Rio had originally proposed to sell to Chinalco. The joint venture would combine Rio and BHP’s prized iron ore assets in the Pilbara region of Western Australia. [2]

[1] Source: Market Watch (4 June 2009)
[2] Source: Financial Times (4 June 2009)

By Anthony Grech, Research Analyst, IG Index.

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