Wall Street pared gains made at the start of the opening bell today following an unexpected rise in the number of Americans claiming unemployment benefits and a steep decline in regional manufacturing data.
The feeling in the market at this juncture is that the US economic recovery is running out of steam. We recently heard James Bullard, the Federal Reserve President of St. Louis, make bold claims about the US economy still growing strongly yet the figures we’re seeing are not living up to expectations.
Firstly, initial jobless claims in the US increased by 12,000 over the past week to 472,000. Median estimates by economists surveyed by Bloomberg had forecasted a 6000 drop.
The rise in initial jobless claims suggests that employers are still firing and that’s naturally going to weigh on consumer confidence and spending going forward.
The Philadelphia Fed Manufacturing Survey was the biggest disappointment today, nevertheless. The regional manufacturing gauge fell much more than expected to a reading of 8 in June, the lowest in 10 months.
This compares to a reading of 21.4 the prior month while expectations were for the level to remain the same for June. While a positive number in the index reflects growth, the larger than expected fall implies the US economic recovery may be stalling and coupled with the rise in jobless claims highlights some of the weaknesses facing the US.
A separate report released this afternoon showed the cost of living falling a second straight month in May, relieving the Federal Reserve from the worry of having to raise interest rates sooner to contain price pressures.
The US Consumer Price Index (CPI) fell 0.2% in May, in line with the median estimate shown in a Bloomberg survey of estimates. The drop was predominantly driven by a 2.9% decline in energy costs. Meanwhile food prices, which make up around 15% of the CPI, were flat.
After excluding volatile food and energy prices, the closely watched core measure of consumer inflation rose 0.1% in May following higher costs for clothing and medical care.
This follows a flat reading in April. On the year, the core CPI increased 0.9% in May, matching the smallest year-on-year gain since 1966.
By 3:45pm (London time) the Dow Jones Industrial Average had fallen 69.68 points (-0.67%) to 10339.78, the S&P 500 index had lost 7.05 points (-0.64%) to 1107.56, while the NASDAQ 100 shed 6.24 points (-0.33%) to 1899.07.
BP bucked the negative trend on Wall Street this afternoon, climbing 0.3% to $31.94 in New York and rallying 7.1% to 361p in London on greater clarify over its liabilities.
BP announced that it will form $20 billion fund to pay for the damage caused by the Gulf of Mexico oil spill, after meeting with US President Barack Obama last night. In order to fulfill its promise to the American government, the company said it intends to suspend its dividend for three quarters, cut 10% of its capital expenditure this year and dispose of $10 billion worth of non-core assets.
With the genie out of the bottle at last, the market is now likely to start focusing on BP’s asset sales and evaluating, once they are identified, how those sales will affect the company’s future income stream and whether those disposals are fetching a fair price.
Among the stronger performers on the Dow Jones today were banking stocks, buoyed by this morning’s Spanish bond sale. The gains were only minor, however, with Bank of America adding 0.25% and JPMorgan Chase relatively flat at 0.05%.
The weak manufacturing data out today weighed on Boeing and Caterpillar, which fell 1.49% and 0.53% respectively.
First Solar rallied 3.41% to $122.82, after Credit Suisse upgraded the company from ‘neutral’ to ‘outperform’. Although early days, I believe that we may see further gains in renewable energy stocks as the fallout of the BP Gulf of Mexico oil spill has prompted Obama to accelerate plans to reduce the US’ dependency on oil.
At this juncture, the United States have an excellent opportunity to turn the negative situation instigated from the BP disaster into a real positive. By pushing a drive into innovation in the renewal energy sector this will ultimately create more jobs for the country and give it a competitive advantage in providing renewal energy solutions.
Apple’s shares gained 1.6% to $271.52 today. We have recently seen many of Apple’s suppliers benefit from the booming sales of iPad’s and the new iPhone.
The latest company to benefit from a surge in technology consumption was Cirrus Logic, whose biggest customer is Apple. It shares soared 9.3% to $16.94 after CEO Jason Rhode said his company had to boost its inventories in order to cope with extra demand.
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'Spread Betting News 17 Jun 2010', Article by IG Index, last update: 17-Jun-10
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