While you were sleeping: Labour data boosts confidence

Friday 23rd December 2011

Equities advanced on both sides of the Atlantic as better-than-expected labour market data underpinned hopes that the pace of recovery in the world's largest economy is gaining traction.

In afternoon trading in New York, the Dow Jones Industrial Average gained 0.51 percent, the Standard & Poor's 500 Index climbed 0.77 percent and the Nasdaq Composite Index rose 0.83 percent.

Jobless claims dropped to the lowest level in 3-1/2 years last week, while a separate report today indicated that US consumer confidence strengthened more than expected in December.

"Clearly the year has ramped nicely, based on an improving economic picture," Phil Orlando, chief equity market strategist at Federated Investors in New York, told Reuters.

Jobless claims dropped by 4,000 to 364,000 in the week ended December 17, according to Labor Department data. The median forecast of 45 economists surveyed by Bloomberg News was for an increase to 380,000.

The Thomson Reuters/University of Michigan final index of consumer sentiment rose to 69.9 from 64.1 at the end of November, surpassing the median estimate in a Bloomberg News survey which called for 68 after a preliminary reading of 67.7.

Few seemed bothered by the fact that US gross domestic product grew at a 1.8 percent rate in the third quarter, falling short of the 2 percent median growth projection in a Bloomberg survey.

Orlando said increased inventory liquidation in the GDP report showed end-of-market demand remained strong in the fourth quarter.

"The double-dip fear the bears were talking about in the second half of the year is off the table at this point and investors are seeing domestic fundamentals are in pretty good shape," Orlando said.

Commodities did well today, too, with copper gaining 1.2 percent and US crude oil climbing 1.1 percent.

While the mood was positive for stocks in Europe as the Stoxx 600 Index closed with a 1.1 percent gain for the day, there's plenty of caution left as investors wonder how the euro zone's debt crisis will play out in the new year.

The euro was last less than 0.1 percent stronger at US$1.3052. Italian bonds fell, sending 10-year bond yields 13 basis points higher to 6.94 percent and yields on equivalent Spanish paper were up 13 basis points at 5.449 percent, according to Reuters.

European debt concerns "continue to remain on the back burner with no significant new developments," Michael Woolfolk, senior currency strategist at BNY Mellon in New York, told Reuters. "It's no surprise the market continues to wait for political leaders to make political decisions on the future of the euro zone."

In Italy, senators have given their approval to austerity tax increases and pension reforms as they aim to avoid bankruptcy for the euro zone's third-biggest economy.

Meanwhile, Britain's economy surprised by expanding 0.6 percent in the third quarter, official data revealed but the country still faces possible recession in the new year.

The Office for National Statistics revised higher its estimate for gross domestic product growth between July and September compared with the second quarter. Analysts had expected no change to the earlier forecast putting British GPD growth at 0.5 percent in the third quarter, according to Reuters.

BusinessDesk.co.nz

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