A bigger-than-expected drop in initial jobless claims wasn’t enough to keep Wall Street out of the red today. Investors focused on growing political tensions between the US, Europe and China, which threaten to derail the global economic recovery.
The number of US citizens claiming first-time jobless benefits (initial jobless claims) fell by 19,000 to 457,000 in the week ending 19 June. This was better than the 463,000 median forecast shown in a Bloomberg survey estimates and adds some support to the Federal Reserve’s comments last night that the labour market is improving gradually. The US nonfarm payroll figures, due for release next week, will play an even more important role in determining whether any real progress has been made in the labour market, meanwhile.
The fall in jobless claims had little impact on equities, however, as investors became increasingly concerned that political instability could threaten the global economic recovery.
Polls in the US are also showing Obama losing popularity with voters, who are apparently becoming less confident in the Presidents leadership and ability to handle a crisis. This is putting pressure on Obama to start achieving results, namely to tackle the high unemployment rate that keeps lingering and to restore confidence in the financial system.
Germany has been receiving a lot of criticism over its stance to push ahead with tough austerity measures at a time when their economy is actually quite robust. The US has been urging Germany to ditch their deficit reduction plans and to instead continue with stimulus measures designed to boost domestic consumption. This weekend’s G20 meeting will be important for the two nations to reach an agreement on the move forward, or two at least demonstrate to the public that their differing views will not sour their relationship.
Political tensions could also rise between China and the USA after US officials said they will push forward with their plans to impose trade penalties on Chinese imports in an attempt to address the perceived trade imbalance between the two countries. Even though China announced on Monday that they would be more flexible with the valuation of the renminbi, investors have discounted the action as nothing more than a token gesture to ease tensions ahead of the G20 meeting.
‘They take a step forward, and then a step back. It's the same pattern we have seen for years,’ said Democratic Senator Charles Schumer. [1]
Separately, the ousting of Australia’s Prime Minister Kevin Rudd yesterday and the sudden change in prime ministers in Japan earlier this month have also added to uncertainties and it is little wonder that political instability is increasingly becoming an important factor when considering the global outlook.
By 5:00pm (London time) the Dow Jones stood 92.43 points (-0.90%) lower at 10206.01 while the broader S+P 500 was 12.15 points (-1.11%) below its previous close at 1079.89.
A rise in durable goods orders for May initially lifted manufacturers, but the losses were later pared on the back negative stock market sentiment. Boeing fell 0.25% and General Electric lost 1.07% this afternoon.
Banks were among worst performers today, as mounting concerns over the European debt crisis encourage investors to reduce their exposure to the sector. Uncertainty over the US financial reform bill, now near completion, also weighed on banks today. Citigroup, Morgan Stanley, JPMorgan Chase and Bank of America all lost around 2.5% while Goldman Sachs fared slightly better, declining 1.4%.
Meanwhile, Nike’s shares slid 3.7% to $69.84 after the sports apparel maker missed fourth-quarter analyst expectations.
Source: [1] Reuters (24 June 2010)
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'Spread Betting News 24 Jun 2010', Article by IG Index, last update: 24-Jun-10
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