Wall Street slipped further in the red this afternoon after a larger than expected rise in initial jobless claims, coupled with a sharp drop in pending home sales, took its toll on investors and sparked another round of selling.
The number of US citizens claiming initial jobless claim benefits unexpectedly rose over the last week, reflecting the difficulty businesses are having in retaining their employees during these challenging economic conditions. The number of initial jobless claims rose by 13,000 last week to reach a seasonally adjusted 472,000. Economists were expecting the number of claims to decline to 455,000, according to the median estimate from a Bloomberg survey.
US pending home sales were another disappointment today, dropping by a whopping 30% in May. Economists were expecting to see a drop in sales after the expiry of the government's tax credit scheme in April, however the estimates did not predict such a large fall. The US Senate is now considering extending the time allowed for buyers seeking to claim the tax credit. The extent to which the tax credit was propping up the property market is very alarming and demonstrates the difficult road ahead to restore stability in the US housing market.
The Institute of Supply Management (ISM) also released figures today that showed manufacturing in the US slowing. The ISM Manufacturing Index fell to 56.2 in June, compared to 59.7 the previous month, which represents a larger decline than anticipated. This sets a worrying trend, with manufacturing also reported to be slowing in China, and highlights the difficulty the US is having in boosting their exports when they are faced with such a strong US dollar. On the face of it, with no one picking up the slack for global demand the signs are not looking good for a sustained recovery.
By 3:45pm (London time) the Dow Jones Industrial Average was at its lowest level in nine months after losing 113.51 points (-1.17%) to 9660.51. The SPX 500 had lost 16.77 points (-1.65%) to 1013.94 while the NASDAQ 100 shed 34.66 points (-2.03%) to 1704.48.
One asset class that is benefitting from the hiatus in equities are US treasuries. As investors seek a safe place to invest their funds, low-yielding treasuries are about the safest bet for the ultra risk-averse. The two-year treasury yield reached a record low yesterday of 0.5856% while yields on ten-year treasuries have fallen below 3%. The fall in longer-term yields represents a flattening of the yield curve and can loosely be interpreted as an expectation of lower inflation in the future. This prolonged expectation of a low-inflation, low-interest-rate environment may have contributed to the US dollar dropping off significantly against sterling and the euro this afternoon.
Banking stocks were sharply lower, with Bank of America losing 4.8% on the Dow Jones , while JPMorgan, Morgan Stanley and Wells Fargo had all lost over 3%. Citigroup's shares had initially gained 1.1% to $3.80 this afternoon. The US Treasury Department today announced this it has sold 1.1 billion Citigroup shares since May 26, reducing its stake in the bank to 18%. The Treasury said that sales to date, comprising of the 1.5 billion shares sold earlier this year, have produced a total of $10.5 billion in proceeds. The gain was pared after the pending home sales data was released, which sent Citigroup shares 2.66% lower.
Dell Spread Betting News
The negative stock market sentiment dragged on Dell's shares this afternoon. The world's third-largest PC maker opened higher today after UBS upgraded its shares from 'neutral' to 'buy'. 'We continue to believe Dell will be a beneficiary of an enterprise PC refresh that should begin in [the second half of 2010] and grow in 2011,' they wrote in a note to clients. 'We see concerns over PC industry softness driven mostly by consumer rather than enterprise as an aging enterprise installed base makes upgrades a greater priority.' UBS lowered Dell's earnings estimates to account for PC unit share loss, limited gross margin improvements and higher operating expenditures. As a result, it cut Dell's price target by 11.4% to $15.50 a share. [1]
Yahoo Spread Betting News
Yahoo advanced 0.8% to $13.95 this afternoon, after the company's board of directors announced plans to buy back $3 billion worth of shares over a three-year span. The size of the share buyback programme signals that Yahoo is confident in its future prospects. Yahoo has already bought back $385 million in stock in the first quarter.
Friday
Ending a terrible week for equities will be the release of the all-important non-farm payroll data, which is scheduled for release at 1:30pm London time. Analysts surveyed by Bloomberg are anticipating a 125,000 decrease in the number of new jobs created for June. It's equally important to consider the private sector payrolls, which are expected to rise by 110,000, following a 41,000 increase the prior month.
Source: [1] Marketwatch (1 July, 2010)
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'Spread Betting News 1 Jul 2010', Article by IG Index, last update: 1-Jul-10
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