US equity markets opened in the red once again this afternoon, as a disappointing rise in the number of new jobless claim filings indicates that the US labour market still remains weak, despite recent signs of stabilisation.

The jobless claims report revealed that the total number of Americans claiming unemployment benefits for more than a week (continuing jobless claims) jumped by 29,000 to 6.738 million in the week ending 13 June. This was worse than Bloomberg’s expectations for a rise to 6.714 million and follows a 126,000 drop the week before.

In the meantime, the number of Americans claiming first-time unemployment benefits (initial jobless claims) unexpectedly rose by 15,000 to 627,000 in the week ending 20 June. The result was substantially worse than Bloomberg’s expectations for a decline of 8,000 and lifted the four-week moving average, a less volatile measure, by 500 to 617,250.

Today’s report is ‘just a reminder that the labour market is still in serious trouble and the unemployment rate will continue to increase into 2010,’ said Ryan Sweet of Moody’s Economy.com. While the trend in recent weeks shows a slower pace of claims, ‘hopes for a quick rebound in the labour market are overly optimistic.’ [1]

Separate figures, meanwhile, showed that the final reading for US GDP shrank at an annualised rate of 5.5% during the first quarter, which was better than preliminary estimates of a 5.7% annualised contraction. The Commerce Department attributed the slight improvement in GDP to a smaller trade deficit, so at least not all the data was dismal.

Although US markets started lower, stock indices began paring losses, as gains in homebuilders, retailers and energy producers countered weakness in banks.

KB Homes jumped 4.5% to $14.25, D.R. Horton advanced 1.5% to $9.27 and Centex Corp climbed almost 4% to $8.43, after Stuart Miller, the chief executive of homebuilder Lennar, said he sensed ‘pent-up demand’ in the housing market.

The company, meanwhile, today reported 21% drop in revenues, which came in at $891.9 million and a net loss of $125.2 million. This follows a net loss of $120.0 million the year before. Despite this, the company’s share price jumped 13% to $8.84 this afternoon, aided by the chief executive’s comments. Also contributing to the rise was news that it had ended the quarter with $1.4 billion in homebuilding cash and no outstanding borrowing under the company’s credit line.

Home furnishings retailer Bed Bath & Beyond was also in positive terrain, up 10% to $31.25 after reporting an unexpected increase in quarterly profits, helped by aggressive cost cutting, which countered a drop in demand for home furnishings. Its net income came in at $87.17 million, or 34 cents a share, beating Reuters’ expectations for 25 cents a share from $76.78 million, or 30 cents a share a year earlier.

Oil producers were also trading higher, after the price of August WTI crude futures rose 1.3% to $69.56 a barrel. August Brent also advanced, climbing almost 1.5% to $69.31 a barrel. Crude futures gained after a Nigerian militant group shut down one of Royal Dutch Shell’s pipelines. In the meantime, shares in oil producer Exxon Mobil were up by 0.2% to $68.58 a share.

Shares in Hertz Global also soared today, up 8.4% to $7.6 a share after forecasting quarterly profits that topped consensus estimates. The company also said that it foresaw no substantial long-term financial impact from General Motors and Chrysler bankruptcies.

In contrast, US banks were weaker today, with Bank of America down 2.3% to $12.07 after Citigroup said that BoA’s second quarter was ‘likely to be a challenge,’ and cut its price target from $20 to $18. ‘We see another large reserve build in the second quarter and expect loan loss provisions to be up versus the elevated first quarter,’ Citigroup wrote. [2]

Goldman Sachs was also lower, down 0.34% to $142.16 after Barclays cut its second quarter earnings per share forecasts to $3.55 from $5.20. Barclays also said that Morgan Stanley was likely to produce a second-quarter loss per share of $0.70 [3]. Shares in Morgan Stanley fell 0.3% to $27.57.

By 3.30pm (London time), the Dow Jones Industrial Average managed to gain 51.01 points (+0.61%) to 8350.87, while the broader S&P 500 index advanced 7.43 points (+0.82%) to 908.37.

[1] Source: Bloomberg News (25 June 2009)
[2] Source: Reuters News (25 June 2009)
[3] Source: Reuters News (25 June 2009)

By Anthony Grech, Research Analyst, IG Index.

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