Forex and Indices Market Trading 0
The Dow Jones index opened flat today after key employment data gave mixed signals about the state of the economy.
By 3pm in London, the DJIA was trading down just 4 points at 9340, while the broader S&P 500 index was unchanged at 1003.
Over the last few weeks we have seen stock prices moving upwards and several economic indicators have pointed towards a resumption of economic expansion. There is a growing feeling on both sides of the Atlantic, though, that unemployment may yet prove to be the last stumbling block on the path out of recession.
It’s a fair assumption, therefore, that players in the market were waiting to hear from the Labour Department with some trepidation. This was, after all, being billed beforehand as being make or break territory for the recent rally.
As so often happens in such scenarios, however, the figures proved to be something of a damp squib: the unemployment rate climbed to 9.7, up from July’s rate of 9.4% and slightly higher than had been anticipated. This information was offset somewhat by a drop of 216,000 in payrolls, which was smaller than forecast and also the smallest drop in the last 12 months. Analysts in a Bloomberg survey had given a median consensus of 230,000 job cuts.
To my mind, this is good news: the payroll figure is better than the market was expecting. Fewer layoffs is a sign of stabilisation and in my opinion there’s nothing in these figures to clearly derail a stock market rally. The pace of hiring needs to pick up though in order to remedy that unemployment rate and that’s something that doesn’t appear to be happening just yet.
With the employment figures out of the way and duly absorbed by the market, attention now switches to this weekend’s meeting between finance ministers from the G20 nations. Both Timothy Geithner and Alastair Darling have already commented to the effect that they intend to first avoid withdrawing economic stimulus before recovery is assured and second have prepared a credible method of winding down the stimulus when the time comes.
This echoes the sentiments emphasised by ECB president Jean-Claude Trichet in his press conference yesterday following the decision to keep the main EU financing rate at a record low of 1.0%.
Trichet also affirmed in a speech in Frankfurt this morning that now was not the right point to be tightening monetary policy.
If the G20 meeting does go in the direction of confirming the status quo of the various economic stimulus packages for the time being, one of the prime recipients to benefit will be the banking sector and perhaps unsurprisingly then, Bank of America was one of the stocks on the rise on Wall Street this afternoon. Shortly after the open it was trading at $17.21 up 2.2%.
In London, banking stocks were also thriving, helping to push the FTSE 100 up as high as 4873, a rise of 1.6%. HSBC gained 2.1% to 657p, while Standard Chartered and Lloyds Group also added more than 1% on to their share prices.
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.