The Dow Jones opened higher today after durable goods and initial jobless claims figures beat expectations. However, gains were later relinquished on the back of reports showing that new home sales trailed expectations and mortgage delinquencies surged to record levels in the US.

Investors looked at macro data for reassurance, only to find that underlying fundamentals are still far too weak.

The market reacted positively to the first batch of data, which showed orders for US durable goods unexpectedly surged in April. Manufacturer orders for long-lasting goods jumped 1.9% in April to a seasonally adjusted $161.45 billion, substantially better than Bloomberg’s expectations for a 0.5% rise following the prior month’s revised decline of 2.1% (the drop in March originally came in at 0.8%).

A rebound in automobile demand and defence spending was the main impetus behind the rise in latest figures.

Durable goods, excluding transportation equipment, rose 0.8% in April, also beating Bloomberg’s median forecast for a 0.3% fall. But the data for March was revised to show a 2.7% decline (unrevised -0.6%). In addition, orders for non-defense capital goods excluding aircraft, a gauge for future business investment, plunged 1.5% after a 1.4% decrease the month before.

Weekly jobless claims data was also released this afternoon. The report essentially indicated a slowdown in the rate of fresh weekly redundancies, a good sign, but at the same time US employers remained reluctant to hire.

The number of Americans claiming first-time unemployment benefits (initial jobless claims) fell 13,000 to 623,000 in the week ending May 23, better than Bloomberg’s expectations for a 3000 drop to 628,000 from an originally reported 631,000 the week before (the prior week was upwardly revised to 636,000).

The four-week moving average for initial jobless claims, which strips out weekly volatility, fell 3000 to 626,750 from 629,750.

However, the number of Americans claiming unemployment benefits for more than one week (continuing jobless claims) surged by 110,000 to a new record high of 6.788 million – the 17th consecutive week in which the figure sets a record.

The US equity market had initially reacted positively to the above data, but at 3pm (London time) sentiment turned after new home sales and mortgage delinquency data disappointed investors.

An official government report stated that purchases of new homes in America rose 0.3% to an annualised rate of 352,000 in April, substantially trailing Bloomberg’s median estimates for a 1.1% rise to 360,000.

Adding to the concerns was a bleak report from the Mortgage Bankers Association (MBA), which revealed that delinquencies and foreclosures rose to record levels in the first quarter of this year.

According to the institution, the US delinquency rate jumped to a seasonally adjusted 9.12% and the share of loans entering foreclose rose to 1.37%. ‘If people don’t have a pay cheque they can’t support a mortgage,’ said Jay Brinkmann, MBA’s chief economist. ‘The longer the recession lasts the more people run through their savings reserves, leading to higher delinquencies and higher foreclosures.’ [1]

By 2.35pm (London time) the Dow Jones Industrial Average had fallen 26.36 points (-0.32%) to 8273.66, while the S&P 500 had delinked 2.03 points (-0.23%) to 891.03. The Nasdaq was also in the red, down 5.63 points (-0.40%) to 1396.25.

House builders were, unsurprisingly, among the worst performers on Wall Street this afternoon, with DR Horton down 5.4% to $8.72 and Centex Corp 5.7% lower to $8.44. Lennar Corp had declined 6.4% to $8.77.

US banks were more resilient to the bleak housing market news, with Bank of America rising 1.9% to $11.12 and Wells Fargo advancing 0.25% to $24.14. JPMorgan Chase climbed 4.15% to $36.10 and Goldman gained 2.2% to $143.1, while Citigroup remained unchanged at $3.70.

[1] Source: Bloomberg News (28 May 2009)

By Anthony Grech, Research Analyst, IG Index.

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