Positive US Labor Data Boosts US Indices: Spread Betting News

Posted on | November 5, 2009 |

Stocks on Wall Street opened fairly robustly this afternoon, after the pre-market release of encouraging labour data and upbeat news from Cisco Systems and Costco.

By 2.40pm (London time) the Dow Jones was trading up 78 points or 0.8% at 9880 and by 3pm had progressed to 9928 (+1.3%). The wider S&P 500 was up by 6.30 points or 0.6% at 1052.8, while the Nasdaq 100 climbed 1.2% to 1700.

Last night the Fed renewed its pledge to maintain interest rates at their current low levels for an ‘extended period’, citing the high level of unemployment as an ongoing concern. Data released today from the US Labor Department was better than had been expected though, showing that the number of workers filing new claims for jobless insurance last week fell to a 10-month low.

Jobless claims were reduced by 20,000 to a seasonally adjusted 512,000 during the week ended 31 October. A Reuters survey had suggested a figure of 523,000.

This fall in the number of applicants for unemployment insurance is obviously welcome news, but for a sustained recovery it’s essential that the labour market continues to improve.

Although we received confirmation last month that the US economy emerged from recession during the third quarter, much of that growth can be attributed to the US government’s stimulus programme.

Eventually those stabilisers are going to have to come off, and a solid labour market will be needed to keep things upright. Further indications of the state of the labour market will be gleaned tomorrow with the release of October’s non-farm payrolls at 1.30pm (London time).

Cisco Systems said last night that quarterly revenue had increased more than expected and that its board has allocated as much as $10 billion for buying back its own shares.

Cisco CEO John Chambers said, ‘The numbers are indicating us being in the early, initial phase of a recovery, with the US leading the way.’[1]

Cisco was trading at $23.29, up by 53 cents or 2.3% by 3pm.

Wholesaler Costco announced that its October comparable store sales had surpassed expectations, reaching 5%, against the 4.2% previously estimated. [2]

Its share price reacted only mildly to the news, climbing 0.2% to $58.92, but Costco’s position as a leading light in the world of retail means that these surprisingly good results bode well in a wider sense as an indicator of consumer spending and confidence, key pillars of the US economy.

The positive opening in US markets has had a beneficial effect on stock markets around Europe, with the FTSE 100 and the German DAX both tentatively creeping out of the red by mid-afternoon, after weak morning sessions. By 3.30pm both indices were up by around 0.5%.

Tesco was one of the success stories on the London Stock Exchange this afternoon, trading up more than 2% at 419p, this follows Tuesday’s upgrade of the stock from ‘Neutral’ to ‘Buy’ by Goldman Sachs.

Another retailer performing well today is Dutch grocer Ahold, which is up around 5%. Its strong performance comes in the wake of news that two key executives are being freed up from day-to-day operations, which has led to speculation that the company is gearing up for strategic initiatives or acquisitions. Complicating issues somewhat, ING analysts suggested on Monday that Ahold itself might be a target for Tesco. [3]

[1] Source: Bloomberg (5 November 2009)
[2] Survey by Retail Metrics in Swampscott, Massachusetts
[3] Source: Reuters (5 November 2009)

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

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