Some promising economic data helped US stocks to rebound slightly from yesterday’s heavy losses, but gains remained tentative as the deadlock in Washington threatened to turn into complete paralysis.
By 3.30pm (London time), the Dow Jones was up 0.23% at 12330.29, while the S&P 500 was 0.35% higher at 1309.4. However, both indices were struggling to hold their ground, with the S&P 500 dipping below 1300 for the first time since 18 July. In London, the FTSE 100 fought its way higher to stand almost unchanged at 5856.17.
US data shows improvement
Initial jobless claims dropped to a three-month low, raising hopes once more that the US labour market is beginning to show signs of life. Claims fell by 24,000 for the week to 23 July, to 398,000, beating forecasts that had expected a drop to 415,000.
The four-week moving average also improved, falling to 413,750 from 422,250, but remains stubbornly above 400,000. Continued labour market weakness means policymakers must keep rates at their current low, in an attempt to provide incentive to companies to expand.
Existing home sales data also provided a pleasant surprise for spread betting markets, rising 2.4% in July rather than declining by 2% as forecasted. The figures bring the year-on-year gain to 17.3%, comfortably ahead of the predicted 14.7%.
Buyers took advantage of lower prices and borrowing costs, but with unemployment above 9% and foreclosure numbers mounting, it will take a significant period of time before the full overhang in the US housing market is cleared.
Attention remains centred on Washington
While the economic news allowed shares spread trading investors some reasons to smile, the overall narrative today remains that of the US debt ceiling problem.
Markets around the world watch in horrid fascination, as the political train crash continues to unfold. A sign of the increasing frustration was seen in UK and US borrowing yields, with those for ten-year UK gilts falling below those of their US Treasury equivalents, as more investors increase their position in UK government borrowings in preference to the US.
However, both UK and US bond yields remain above those of their German counterparts, with the ten-year bund yield now at 2.6%, showing that investors are not yet too worried about the fact that Germany is essentially underwriting the entire euro project.
The current state of play is that House Republican leader John Boehner has managed to bring his rebels into line, with a number of GOP congressmen changing their minds and pledging their support for his plan. However, the Democrats are adamant that their plan will not get through the Senate, so this particular impasse remains without any hope of a solution.
Eurozone jitters return
What a difference a week makes. A quiet morning for the euro was halted by an Italian bond sale that has reignited fears about the health of the Italian economy. Rome’s sale of €2.7 billion in ten-year notes saw yields rise to 5.77%, their highest for over ten years and well ahead of the 4.94% yield demanded in the last equivalent auction.
Rumours that finance minister Giulio Tremonti had resigned did not exactly help matters, though these were proved not to be true.
Last week's Eurozone summit, which was widely hailed as having provided the means to resolve the crisis, now seems a long time ago. Questions linger about the Greek bailout, while the threat of a meltdown in Italian finances remains. And, to top it all, Cyprus looks as if it might jump the queue and become the next country to need a bailout.
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'Spread Betting Markets Edge Higher on US Home Sales Data', Article by IG Index, last update: 28-Jul-11
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