US equity markets experienced a bit of a mixed start today, as further signs of stabilisation in the embattled American labour market left investors feeling as if the Fed may decide to raise interest rates ahead of schedule.

A Labour Department report released this afternoon has showed the number of Americans claiming first-time jobless benefits (initial jobless claims) unexpectedly falling by 22,000 to 432,000 in the week ending December 26.

That was the lowest since July 2008 and substantially better than Bloomberg’s median estimates, which pointed to a rise to 460,000 from an originally reported 452,000.

In addition, the total number of people continuing to receive jobless benefits for more than a week (continuing jobless claims) dropped to 4.98 million, the lowest level since February.

A spokesman at the Labour Department explained that last jobless claims figures were ‘consistent’ with recent trends and were not influenced by any unusual factors. Even so, the week of the Christmas holiday is difficult to adjust for seasonal variations, he explained. [1]

Although the data bodes well for the American economic recovery story, it raises the prospects for a rise in short-term interest rates, which trims share valuations.

By around 3:15pm (London time) the Dow Jones Industrial Average was trading 25.54 points (-0.24%) lower at 10522.97 while the broader S&P 500 was only 1.56 points (-0.14%) below its previous close at 1124.86. The Nasdaq, meanwhile, retreated 4.21 points (-0.22%) to 1874.44.

Resource stocks were faring particularly well today, predominantly as a result of rising metal prices. It stands to reason that a robust recovery in the labour market will raise consumption for natural resources. More importantly, however, were the comments from the governor of China’s central bank, Zhou Xiaochuan, who said that China will maintain ‘moderately loose’ monetary policy in 2010. [2]

Shares in Freeport-McMoRan Copper & Gold traded 0.7% higher at $81.42 while Newmont Mining saw its share price appreciate by 0.8% to $47.98. Gold companies Barrick Gold and Gold Fields Ltd were among the sector’s best performers so far, however, up between 1% and 2%.

Banks were also en vogue, with the likes of Citigroup and Wells Fargo up by 0.6% to $3.34 and $26.98 respectively.

In contrast, Preferred Bank, an independent bank that focuses on the Chinese-American market, saw its shares tumble 20% to $1.71 on the Nasdaq this afternoon, after FBR Capital Markets downgraded it from ‘market perform’ to ‘underperform’, saying the company may need to raise money to bolster its capital. [3]

City National Corp was another laggard, marginally down by 0.1% to $45.96, despite announcing that it has repurchased $200 million of preferred shares from the US Treasury Department.

Elsewhere, Time Warner Cable was in focus this afternoon after saying that is willing to go to arbitration with News Corp’s Fox Networks in order to avoid losing some of Fox’s channels. News Corp wants to settle the issue privately, however.
Shares of Time Warner Cable were practically unchanged at $41.76 while News Corp edged 0.3% lower to $13.87.

Source: [1], [2], [3] Bloomberg News (31 December 2009)

By Anthony Grech - Reseach Analyst, IG Index.

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US equity markets struggled to find direction during the first hour of trading today, as the release of more positive American economic data lifted the market’s short-term interest rate expectations.

The Institute for Supply Management’s Chicago Purchasing Managers Index, an important barometer for business activity, rose to a reading of 60 in December from 56.1 the prior month – beating Bloomberg’s median estimates of a drop to 55.1.

The unexpected rise in the Chicago Purchasing Managers Index left the market feeling as if the Federal Reserve may raise interest rates ahead of schedule today.

This helped the US dollar advance and metal prices retreat, which unsurprisingly weighed on the heavyweight mining sector.

Shares of Vista Gold sank 2.5% to $2.39 on the AMEX, while Southern Copper retreated 1% to $32.61 on the NYSE. Newmont Mining fell 0.8% to $47.39 while Freeport-McMoRan Copper & Gold edged 0.2% lower to $80.96.

By around 3:30pm (London time) the Dow Jones Industrial Average traded 0.53 points (+0.01%) higher at 10545.94 while the broader S&P 500 was 1.16 points (-0.10%) lower at 1125.04.

The VIX, which is the Chicago Board Options Exchange Volatility Index, was marginally higher, meanwhile. The volatility gauge traded 1.3% higher at 20.3.

US airline carriers were trading in negative territory as well this afternoon after Japan Airlines fell to a record low overnight over fears it is heading for bankruptcy.

Southwest Airlines sagged 1.2% to $11.29, US Airways saw its share price fall 2% to $4.75, while Delta Air Lines declined 1.4% to $11.17.

Financials were out of favour as well this afternoon, with Citigroup down 1.2% to $3.33 and Bank of America 0.6% lower at $15.03. Morgan Stanley was also trading a notch lower at $29.4 on news that a Virgin Islands pension fund is suing the group.

Bucking the negative trend was Nasdaq-listed staffing services and solutions company KForce, which rallied 14.2% to $13.1 after the Department of the Interior announced the company was now authorised to enter into new and renewed federal business following a suspension.

Broadcom, provider of semiconductors for wired and wireless communications, was also en vogue, up 1.6% to $31.8, after announcing it will pay out only $160 million to settle a class action lawsuit relating to stock option backdating. The company did not admit to any wrongdoing.

By Anthony Grech - Reseach Analyst, IG Index.

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US equities made decent gains at the start of trading today, despite flat American housing data.

An official government report released this afternoon has revealed that home prices across 20 US cities were flat in October, dashing hopes for a sixth straight monthly increase and casting some doubt over the market’s ability to sustain the recent progress.

Although the S&P/Case-Shiller home-price index fell short of Reuters expectations for a 0.2% rise, September’s figures were revised to show a seasonally adjusted monthly gain of 0.4% as opposed to an originally reported 0.3% rise. In addition, the year-on-year decline of 7.3% narrowed from a revised annual drop of 9.3% in September, suggesting the overall trend is still stabilising.

‘The report signals that we have a growing stabilisation in house prices. Obviously it’s at a very slow pace and that is because the market is still saddled with a significant amount of inventory,’ explained Anna Piretti, a US economist at BNP Paribas.

‘We’re likely to see some negative cross currents come into home prices in November, but that doesn’t really change the trend – the trend should be toward stabilisation.’ [1]

President Barack Obama and Congress recently approved the extension of a tax credit for first-time homebuyers. The incentive, which has been moved from November 30 to April 30 2010, is likely to continue supporting the US housing market.

Meanwhile, a separate report showing better-than-expected US consumer confidence figures boded well for equity market sentiment. The Conference Board’s consumer sentiment index rose to a reading of 52.9 in December from a revised 50.6 the prior month. That beat Reuters expectations for a rise to 52.5.

By 3.40pm (London time), the Dow Jones Industrial Average traded 23.88 points (+0.23%) higher at 10570.96 while the broader S&P 500 was 1.42 points (+0.13%) higher at 1129.2. In the meantime, the technology-based Nasdaq Index was 2.06 points (-0.11%) in the red at 1876.12.

US retail shares were en vogue this afternoon, after online retailer Amazon had its price target upped by two brokers today. Kaufman Bros raised its price target on the company’s stock by nearly 30% to $155 while Piper Jaffray upped its target on Amazon 5.5% to $172 a share. Their upgrades come after Amazon announced that sales of Kindle digital books outpaced sales of physical books on Christmas Day. [2]

Amazon’s share price climbed 0.6% to $140.1 while Wal-Mart Stores edged 0.3% higher to $54.12.

Mining shares were also on an uptrend, with Freeport-McMoRan Copper & Gold up 1% to $82.62 on the back of higher copper prices. Copper traded at a 15-month high today, as investors speculated that a strike at the Chuquicamata copper mine in Chile, the world’s second-largest, may restrict supply of the industrial metal.

Source: [1] Reuters News (29 December 2009)
Source: [2] Financial Times (29 December 2009)

By Anthony Grech - Reseach Analyst, IG Index.

Risk Warning: Spread betting carries a high level of risk to your capital. You may lose more than your initial investment. It may not be suitable for all investors. Only speculate with money that you can afford to lose. Please ensure you fully understand the risks involved and seek independent financial advice where necessary.

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The UK’s leading index continues to be up on the day, trading at 5342 points with resource stocks continuing to dominate.

Cairn Energy remains out in front, now up 20.70p (+6.49) at 330.5p, with Royal Dutch Shell ‘A’ and ‘B’ close behind, up 2.62% and 2.72% respectively at 2.50pm (London time).

Also among the winners is the London Stock Exchange. The exchange has announced that it will take a 60% stake in the Turquoise trading platform. Originally setup as a rival to the LSE’s own platform, Turquoises ‘dark pool’ trading platform will assist the LSE in trading large amounts of shares without alerting complicated computer algorithms of the transactions. The ability to move large amount of shares will also help the exchange compete with the bigger European players. Currently the London Stock Exchange is up 18p (+2.55) at 724p.

Across the Atlantic today’s GDP figures show that the US economy has expanded at a slower-than-expected amount. Economists had been expecting a 2.8-2.9% growth in third-quarter GDP figures released this morning. The figure revised figure came in at 2.2% for the July to September period and indicated that the pace of recovery is not as fast as many had expected.

At the opening bell US stock markets showed some resilience to these disappointing GDP figures. By 3.20pm (London time), the Dow Jones Industrial Average had risen and was trading up 44.06 points (+0.42%) at 10458.20, while the broader S&P 500 was also up 5.42 points (+0.49%). The Nasdaq was also in positive territory, up 10.32 points (+0.46%) to 2247.98.

Among the winners in the Dow Jones were technology giants Microsoft and Hewlett-Packard, up $0.30 (+0.98%) and $0.55 (+1.06%) respectively. Aviation heavyweight Boeing led the pack, trading at $55.25 after it bought Finmeccanica’s share of the 787 Dreamliner fuselage plant in the US. This will give the aviation giant greater control of the delayed aeroplane’s production.

Also among the winners was Home Depot, up $0.28 at $29.24. Accounting for this was this morning’s release of positive housing data. November’s Existing Home Sales report showed sales of previously owned homes surging. The National Association of Realtors revealed that sales had risen 7.4% to an annual rate of 6.54 million units, the highest rise in over two years, and higher than the 6.25 million units that was expected. This was the third straight increase of note, as buyers looked to take advantage of the expiring federal tax credit.

By Peter Martin, Director, Client Education and Training, IG Index.

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Stock prices came under pressure this afternoon on Wall Street, with a resurgent Dollar affecting foreign investment flows, and also affected by the release of unexpectedly weak initial jobless claims figures for the week ending 12 December and a lower profit forecast by FedEx Corp.

Shortly after the open, the DJIA was trading down 62 points or 0.6% at 10380, while the S&P 500 was down the same proportion at 1102.5.

The US labor department announced that the number of workers filing new applications for unemployment benefits increased last week by 7,000 to a seasonally adjusted 480,000, up from a downwardly revised 473,000 the week before.

Initial claims of 465,000 had been forecast by surveys from both Bloomberg and Reuters, so that the data came as something of an unpleasant surprise. That said, there is nothing shocking in these figures: compared to earlier in the year when we were seeing huge numbers being systematically added to the ranks of the unemployed, it is palpable that the labour market is at least stabilising.

‘Overall, the labor market is recovering, although the last two jobless claims numbers suggest that the pace is still fairly gradual,’ said Vassili Serebriakov of Wells Fargo. [1]

Last night the Fed maintained the Fed Funds Rate at essentially 0% and reaffirmed its intention to maintain rates at these exceptionally low levels for an ‘extended period’, citing the labour markets as showing signs of optimism, though also noting that companies are not rushing to add to payrolls.

Today’s jobless figure suggest the Fed has probably got it about right: with no major inflation to contend with and the job market stabilising but still fragile, keeping rates low is the best plan of action.

The four-week moving average for initial claims decreased by 5,250 to 467,500 last week, which is the lowest since September 2008, and the 15th consecutive weekly drop. The four-week moving average smoothes out any week-to-week volatility and so can provide a more rounded picture of the overall trend.

‘I would say the four-week MA [moving average] has got to fall below 450,000 before we can really say that we’ve definitely got stability in the US job market,’ was the view of Tim Hughes, head of Sales Trading at IG Group. ‘We’re nearly there’.

There were more US macroeconomic figures out at 3.00pm: leading indicators from the Conference Board and the ‘Philly Fed’ index of business conditions.

Both were fairly positive, with the leading indicators index, which is a composite index made up of ten indicators believed to predict economic activity, increasing more than anticipated by 0.9%.

The Philly Fed rose to 20.4 in December, also more than anticipated, and indicating that the manufacturing sector is improving. [2]

The manufacturing sector is generally seen as leading the wider economy, and so the data should have been good news for the stock market.

Traders in the market weren’t bowled over though, and by 3.00pm the Dow Jones had slipped to being down 100 points (close to a full percentage point). This is perhaps an indication of how much dollar-weakness has been affecting US share prices.

In response to all the economic news, the US dollar has been making great strides against other currencies today, with Cable trading around 1.6120, approaching lows last seen in the middle of October, and EUR/USD down at around 1.4350, hitting its lowest level in over three months today.

Also affecting the overall stock market was the performance of FedEx, which was trading sharply down today, shedding $4.67 (5.2%) to stand at $85.28. FedEx deals with a massive chunk of overall US shipping, to the extent that the company’s performance can be used as a gauge of the overall economy.

FedEx had raised forecasts for its second quarter performance on 7 December, but today said that it now forecast earnings for the current quarter of 50 cents to 70 cents a share, well below analysts’ estimates. [3]

‘The market had decided this [the early December forecast] meant the economy was going gangbusters. Then out comes the details. The economy is improving but it’s still on shaky ground. So the stock is back to where it was before the pre-announcement,’ Ortwerth said. ‘It’s almost comical. The price goes up, the price goes down.’ [4]

It’s worth keeping an eye out for Oracle and General Mills which both report later today.

Source: [1], [4] Reuters, 17 December 2009, [2] Based on a Bloomberg survey, [3] Based on a Thomson-Reuters survey

By Peter Martin, Director, Client Education and Training, IG Index.

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Confident speculation that the Federal Reserve will keep interest rates low helped push Wall Street back into positive territory today.

A Bloomberg survey of 98 economists predicted that the Fed will leave its benchmark lending rate unchanged despite recent data pointing to renewed economic growth. High unemployment is a key concern for the Fed and analysts feel rates are unlikely to rise while the labour market remains weak.

Jesper Dannesboe, a commodity strategist at Societe Generale SA in London said: ‘The Fed is likely to hint that interest rates will remain at current low levels for the next few quarters. Another year of low interest rates is good for all growth-sensitive assets.’ [1]

The resulting investor sentiment boosted US and European stocks with the Dow trading 43.01 points (0.41%) higher by 3.30pm (London time) and the S&P 500 gaining 5.78 (0.52%) at 1113.71 – approaching its highest level in 14 months.

In the UK, the FTSE slipped from the morning’s highs this afternoon, but was still positive, reaching 5304.49 (+ 0.35%).

This afternoon’s macroeconomic news offered little reason for the Fed to change its policy. US consumer prices rose by 0.4% in November, mainly pushed up by energy costs, while housing starts, which increased 8.9% in November to reach an annual rate of 574,000, failed to hit the expected figure of 580,000.

In companies news, financial stocks regained some of the ground lost yesterday, with Bank of America adding $0.18 (1.19%) at $15.37 while American Express rose by $0.44 (1.07%) to $41.40.

Among those trading lower was Intel, whose shares fell $0.36 (1.80%) to $19.44 after the FTC accused the company of acting ‘to stifle competition and strengthen its monopoly.’ [2] Boeing was also down, dropping $0.58 (1.04%) to $55.09, while General Electric lost $0.05 (0.32%) at $15.70.

[1] Source: Bloomberg News (16 December 2009)
[2] Source: Bloomberg News (16 December 2009)

By Anthony Grech, Research Analyst, IG Index.

Risk Warning: Spread betting carries a high level of risk to your capital. You may lose more than your initial investment. It may not be suitable for all investors. Only speculate with money that you can afford to lose. Please ensure you fully understand the risks involved and seek independent financial advice where necessary.

The above comments do not constitute investment advice and neither IG Index nor Spread-Betting.org accept any responsibility for any use that may be made of them.

IG Index is Authorised and regulated by the Financial Services Authority, register number 114059.

Wall Street dipped back into the red today as investors fretted over the latest US economic releases and Best Buy’s disappointing outlook.

Official government data released this afternoon revealed that US wholesale prices rose nearly twice as much as anticipated in November while a separate report indicated that manufacturing activity in the New York region grew at a rate that was substantially lower than expected.

As turns out, US producer prices climbed 1.8% in November, more than twice the median economic estimate surveyed by Bloomberg while the Federal Reserve Bank of New York’s general economic index slumped to a reading of 2.6 in December from 23.5 the prior month.

The data left the market feeling somewhat insecure over the type of policies the Federal Reserve will have to implement in order to tame rising inflationary pressures without hampering growth.

In the meantime, another report unveiled stronger-than-expected figures for US industrial production, which measures the output at factories, mines and utilities. The gauge rose by 0.8% in November, beating Bloomberg’s expectations and helping offset some of the negativity brought on by the bleak manufacturing data.

Elsewhere, shares of the biggest US electronics retailer Best Buy plunged 7.5% to $41.97 this afternoon after saying that sales of less profitable notebook computers and televisions will weigh on its fourth-quarter gross profit margins.

The company’s third-quarter net income was encouraging, however, coming in at $227 million, or 53 cents a share. This was substantially higher than the prior year’s comparative of $52 million, or 13 cents, when Best Buy took a writedown on its stake in Carphone Warehouse. It was also 20% higher than Bloomberg’s average analyst estimate of 44 cents a share.

Total sales, meanwhile, increased 4.6% to $12 billion, in line with expectations. The rise in sales was helped by the addition of 127 new stores over the year.

Looking ahead, Best Buy upped its full-year profit guidance (excluding one-off items) to $3 - $3.15 a share. This compares with an earlier target of $2.70 - $3 a share. In addition, the electronics retailer said it expects full-year revenue of $49 billion - $49.5 billion, partially driven by higher sales of notebook computers and lower-priced flat panel televisions.

In my opinion, Best Buy’s 7.5% drop is looking a bit overdone today. Although negative stock market sentiment may drag this stock down a little further, I would definitely consider keeping this stock on my watch list.

By around 3.30pm (London time) the Dow Jones Industrial Average was 20.40 points (-0.19%) lower at 1048.65 while the broader S&P 500 was 2.27 points (-0.20%) below its previous close at 1111.84. The Nasdaq, meanwhile, fell 2.83 points (-0.16%) to 1806.26.

Financial shares were predominantly trading lower this afternoon, with the likes of Citigroup and Bank of America down by 2% to $3.61 and $15.31 respectively. Wells Fargo managed to buck the negative trend, however, and advance 2.6% to $26.14 a share after announcing a $10.4 billion share sale that will help it repay all of the government’s bail-out funds.

Elsewhere, Hyatt Hotels gained 1.6% to $29.98 after the Abu Dhabi Investment Authority, which is among the world’s biggest sovereign wealth funds, acquired a 10.9% stake in the hotel group. In the meantime, Goldman Sachs, Citigroup and Deutsche Bank all rate Hyatt’s shares with a ‘buy’ recommendation. [1]

Starwood Hotels & Resorts Worldwide also benefited from a broker update. Its share gained 2.8% to $36.62 after Bank of America Merrill Lynch upped its rating from ‘underperform’ to ‘buy’. The analysts said: ‘we believe there will be a strong cyclical recovery in lodging earnings beginning in late 2010.’ [2]

Looking ahead, the US monetary policy decision and accompanying statement will be released tomorrow. According to Bloomberg, interest rates will remain unchanged near zero and the Fed may say that interest rates will stay low for a ‘prolonged period.’

[1] Source: Bloomberg News (15 December 2009)
[2] Source: Bloomberg News: (15 December 2009)

By Anthony Grech, Research Analyst, IG Index.

Risk Warning: Spread betting carries a high level of risk to your capital. You may lose more than your initial investment. It may not be suitable for all investors. Only speculate with money that you can afford to lose. Please ensure you fully understand the risks involved and seek independent financial advice where necessary.

The above comments do not constitute investment advice and neither IG Index nor Spread-Betting.org accept any responsibility for any use that may be made of them.

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US equity markets kicked off in positive territory today, after deal news spurred risk appetite and Abu Dhabi quashed default fears after providing Dubai World with a substantial sum of cash.

The market heaved a sigh of relief today after Dubai’s cash-rich neighbour handed over $10 billion to Dubai World. This came in order to ensure that its real estate subsidiary Nakheel had sufficient cash to make a $4.1 billion payment on Islamic bonds maturing today and remain operational through the first quarter of next year.

This move confirms that Abu Dhabi is willing to step in when the going gets tough and suggests that the banks that have exposure to Nakheel’s debts are safe – at least for the time being. The development also reduces the risk of a possible widespread contagion.

Sentiment was also lifted by Exxon Mobil, the world’s biggest oil company, which announced that it is to buy XTO Energy in an all-stock deal valued at $41 billion (when including XTO’s debt and factoring in Friday’s closing prices).

XTO Energy is a firm that has developed unique expertise in extracting gas from unconventional sources. Under the terms of the transaction, XTO shareholders will receive a 0.7098 share of Exxon for every share of XTO.

Rex Tillerson, the chairman and chief executive officer of Exxon, said that XTO’s outstanding resource base, which is equivalent to 45 trillion cubic feet of gas, and its strong technical expertise is attractive for Exxon.

‘XTO’s strengths, together with ExxonMobil’s advanced R&D and operational capabilities, global scale and financial capacity, should enable development of additional supplies of unconventional oil and gas resources, benefiting consumers both here in the United States and around the world.’

Mr Tillerson believes the agreement is good news for the United States economy and energy security, as it would enhance opportunities for job creation and investment in the production of America’s own clean-burning natural gas resources. [1] Mr Tillerson also said the deal would not affect Exxon’s plan to invest in Ghana.

Exxon Mobil’s shares plunged 4% to $69.90, while XTO Energy surged 15.7% to $48 a share. In the meantime, Chesapeake Energy jumped 6.25% to $24.47, Devon Energy climbed 4.45% to $66.73, while Apache advanced 3.2% to $97.63.

By around 3:30pm (London time), the Dow Jones Industrial Average was trading 5.52 points (+0.05%) higher at 10477.02, while the broader S&P 500 was 3.09 points (+0.28%) above its previous close at 1109.50. The technology based Nasdaq Index, rose 4.06 points (+0.23%) to 1796.12.

Citigroup was in the spotlight this afternoon. It unveiled plans to issue $17 billion worth of new shares in order to help it repay the $20 billion it owes to the US government, or TARP (Troubled Asset Relief Program) funding, a move that should theoretically free the bank from restrictions on executive pay.

Citigroup’s share price slid 4% to $3.79 on the back of dilution fears. Meanwhile, Bank of America’s share price edged 0.7% lower to $15.52 and Wells Fargo retreated 0.75% to $25.22.

Investors should also note that President Obama is scheduled to meet with top banking executives, including those from Citigroup, later today. He is expected to ask them to support his efforts to tighten up regulation in the US financial services industry.

It is also important to note that the Greek Prime Minister George Papandreou will outline policies on how to cut the country’s burgeoning budget deficit and try to regain the trust of investors this evening.

Separately, Citigroup equity strategists today upgraded the Russian and Hungarian stock markets and downgraded South Africa and Egypt’s shares for 2010. Citigroup also said that Russia and Turkey were its ‘preferred markets’.

Russia’s economic growth is said to be accelerating and its stocks look cheap.

According to Citigroup, ‘although vulnerable if oil prices fall sharply, Russian equities are likely to do well in an environment of oil price stability as energy stocks play catch up with global peers.’ The international financial conglomerate also commented that ‘domestic consumer stories still look attractive even after their strong run in 2009.’

Citigroup also said it remains overweight on Turkey: ‘valuations as still quite compelling, and recent data suggest to us that economic momentum may be starting to build.’[2]

Source: [1] TimesOnline (14 December 2009)
Source: [2] Wall Street Journal (14 December 2009)

By Anthony Grech, Research Analyst, IG Index.

Risk Warning: Spread betting carries a high level of risk to your capital. You may lose more than your initial investment. It may not be suitable for all investors. Only speculate with money that you can afford to lose. Please ensure you fully understand the risks involved and seek independent financial advice where necessary.

The above comments do not constitute investment advice and neither IG Index nor Spread-Betting.org accept any responsibility for any use that may be made of them.

IG Index is Authorised and regulated by the Financial Services Authority, register number 114059.

Hot on the heels of a batch of positive economic data from China this morning, US retail sales figures for November beat expectations, further cementing the path to economic recovery on which we wander.

Hot on the heels of a batch of positive economic data from China this morning, US retail sales figures for November beat expectations, further cementing the path to economic recovery on which we wander.

Retail sales rose by 1.3% during November, far exceeding the 0.6% that had been anticipated by analysts. [1] This was the biggest increase in three months, and points to a solid beginning to what is a vital time of the year for retailers.

‘It suggests the holiday shopping season got off to a pretty good start despite the weak weekly data that we’ve seen’ said John Canally, of LPL Financial.

‘It keeps the recovery on solid footing. The risk of a double-dip ebbs with every strong report we get.’ [2]

And the good news kept on coming, as preliminary figures from a survey by the University of Michigan pointed to burgeoning optimism among consumers. The survey polls a number of households regarding their thoughts on the state of the economy and of their own finances, in order to compile an index that gauges consumer sentiment.

The index for December was 73.4, up from November’s level of 67.4. Once again, this surpassed the consensus of analyst expectation, as 68.9 had been the expected reading. [3]

It’s worth bearing in mind that the figure released today is a preliminary reading, based on data from only 60% of those surveyed and therefore is less statistically robust than the final reading which will be released on the last Friday of December.

No doubt the index will be subject to some kind of revision later on in the month, but nevertheless, I see today’s result is as an unambiguously positive sign.

The road to recovery is a slow process, of course, but we have seen in quick succession now a series of statistics that indicate economic growth.

We found out yesterday that the US trade gap is narrowing; this morning showed that the fires of Chinese industry are once again roaring and that UK manufacturing costs are inflating; and now we have healthy retail sales and consumer sentiment in the US.

Unsurprisingly, stocks on Wall Street responded to the news in upbeat fashion, with the DJIA extending yesterday’s gains by climbing 40 points or 0.4% to 10445 by 3.00pm London time. The broader gauge of the S&P 500 Index told a similar story, adding 0.3% to stand at 1106, while the tech-driven Nasdaq 100 also rose 0.4%.

Dow Jones Industrial Average component Boeing rose 0.8% to $55.43 following its announcement yesterday that test flights on its 787 Dreamliner could start imminently.

The new jet is two years behind schedule, but if the company is able to successfully test fly the light-weight, carbon-composite plane in 2009 it would help restore some lost credibility.

Rob Stallard, of Macquarie Securities, raised his price target for Boeing to $60 from $53, writing in a research note that ‘For Boeing to finally get the 787 into the air is a step in the right direction for the program, following a catalogue of errors and disappointments… We think this will have a positive impact on investor sentiment for the stock, and for the wider aerospace sector.’ [4]

United Technologies Corp, another DJIA component, rallied 1.75% to $69.12, after a statement from the US technology manufacturer and service-provider that the company is expecting to see earnings climb around 10% in 2010.

‘UTC’s 2010 outlook presentation offered broad-based improvement across virtually all of its businesses next year, based almost entirely on internally generated performance improvement,’ said analyst Nicholas Heymann of Sterne Agee in a research note. [5]

European stock markets have largely held on to this morning’s gains without making any real further progress. By 3.30pm London time, the FTSE 100 was trading up 0.8% at 5285, while the German DAX was up 1.2% at 5778.

So, the markets are not overdoing it in response to the upbeat economic data; instead we are seeing steady, measured advancement. In other words, just what we need. Let’s hope we can see more of the same next week.

[1], [3], Expectations based on surveys conducted by Bloomberg
[2], [4], [5] Reuters 11 December 2009

By Peter Martin, Director, Client Education and Training, IG Index.

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Wall Street opened very strongly this afternoon, with the DJIA quickly ratcheting up 100 points of gains (around 1%) within 10 minutes of the open on the NYSE.

This came despite news from the US Labor Department that jobless claims were higher than expected for last week, with the number of workers making new benefit claims jumping by 17,000 to a seasonally-adjusted 474,000.

445,000 had been the consensus expectation of a Bloomberg survey prior to the release. This was the first time the number of initial claims has risen in over month.

Reuters reported a Labor Department economist as saying that claims had been affected by seasonally-driven layoffs as well as by applications postponed by the Thanksgiving holiday.

Of course, the fact that the figures are already seasonally-adjusted should make you take this qualification with a pinch of salt.

A Reuters survey ahead of the announcement had forecast a widening of the gap from $35.6 billion to $26.8 billion, but the actual figure showed the trade gap shrinking 7.6% to £32.9 billion. Among the areas of US export-growth were civilian aircraft and pharmaceutical products.

These burgeoning signs of demand are evidence of the ongoing recovery of the global economy, and in my opinion they are positive in terms of fourth-quarter US growth and can be seen to some degree as a vote of confidence for the Obama-Biden administration, which has previously cited export growth as a potential source of job creation.

There was similar evidence in Canada’s trade balance figures which were also released at 1.30pm, showing an unexpected trade surplus for October of C$428 million, with exports boosted by sales of fuel and metals to the US.

This follows three months of consecutive deficits for Canada. In the wake of the announcement, USD/CAD dropped to around C$1.0480, a decline for the US Dollar of around 0.6% from yesterday’s close.

These fairly clear signs of improvement in the state of the North American economies were evident in the levels of the benchmark stock indices. As well as the resurgent Dow Jones, the wider S&P 500 index skipped up 7 points or 0.65% to 1102, while the NASDAQ 100 gained a similar percentage to stand at 1802 about an hour after the opening.

General Electric announced today that it has landed a $1.4 billion contract from Caithness Energy to supply wind turbines in Oregon, in what could turn out to be the largest wind farm in the world, with a total of 338 turbines set to be put in by 2012.

General Electric shares hit a high of $15.85 but by 4.00pm London time were trading at $15.67, up just a cent on the day.

Eastman Chemical gained more than 0.3%, climbing up to a price of $59.40, after Goldman Sachs issued a ‘buy’ recommendation for its shares.

In Europe stock markets held steady on the gains from their morning trading sessions, with the FTSE 100 up just under 0.6%, while the German DAX and the French CAC-40 both gaining around 0.7%.

Banks continued to fuel many of the gains, with Lloyds Banking Group improving by more than 5% and Barclays adding around 3.5% today.

So all in all, stock markets are looking fairly positive today, encouraged by the latest glimpses of macro-economic recovery.

There may be more tomorrow, with key US retail sales figures for November due out at 1.30pm London time. They are anticipated to rise by 0.6%, which would be a slowing in sales from the 1.4% increase seen in October. [1]

Consumer spending constitutes a large part of the US economy and this data covers the significant period of the Thanksgiving holiday sales. We can therefore hope for some major insights into the state of the US recovery.

[1] Source: Bloomberg survey

By Peter Martin, Director, Client Education and Training, IG Index.

Risk Warning: Spread betting carries a high level of risk to your capital. You may lose more than your initial investment. It may not be suitable for all investors. Only speculate with money that you can afford to lose. Please ensure you fully understand the risks involved and seek independent financial advice where necessary.

The above comments do not constitute investment advice and neither IG Index nor Spread-Betting.org accept any responsibility for any use that may be made of them.

IG Index is Authorised and regulated by the Financial Services Authority, register number 114059.