While you were sleeping Earnings, jobs add up

Wednesday 8th August 2012

Solid earnings, including a record quarterly profit from Chesapeake Energy, and decent jobs numbers help put a positive spin on Wall Street today, underpinned by support for further bond-buying by the US Federal Reserve to help rebuild economic momentum.

Job openings in June climbed to the highest level in four years, according to US Labor department data. To be sure, the pace of hiring eased from the previous month.

"The economy is still growing, that's underpinning labour demand," Henry Mo, a senior economist at Credit Suisse in New York, told Bloomberg News. "Job availability is increasing, but we still need to see employers put this into action. The economy will grow a little better in the second half than in the first half and the labour market will improve gradually."

Boston Fed Bank President Eric Rosengren told the New York Times that the Fed should buy more Treasury and mortgage-backed securities, and continue doing so until it deemed the economic recovery back on track.

"You continue to do it until it's clear that you're no longer treading water," Rosengren said in an interview with the New York Times. "You continue to do it until you have documented evidence that you're getting growth in income and the unemployment rate consistent with your economic goals."

In late afternoon trading in New York, the Dow Jones Industrial Average gained 0.64 percent, the Standard & Poor's 500 Index advanced 0.75 percent and the Nasdaq Composite Index rose 1.08 percent.

While Chesapeake's quarterly earnings numbers added up to the satisfaction of investors, they were particularly pleased with Chief Executive Aubrey McClendon's plan to lower spending.

"We believe Chesapeake's performance can improve even further from this very high level as we progress from operations designed for new asset identification and capture to a more manufacturing-like operations approach," McClendon said on a conference call with analysts and investors.

In Europe, the Stoxx 600 Index ended the day with a 0.8 percent increase from the previous close. Germany's DAX climbed 0.7 percent, France's CAC 40 Index strengthened 1.5 percent, while the UK's FTSE 100 added 0.6 percent.

Earnings from companies including Xstrata provided hope that European companies too are weathering the economic slump better than anticipated.

"Europe is getting on its feet. There's a lack of negative news more so than any positive news, so people are just breathing and watching and hoping that Europe can get its act together," Joseph Benanti, managing director of Rosenblatt Securities in New York, told Reuters.

Yet, there are clear signs that the euro zone remains in trouble. German factory orders dropped more than predicted in June, while Italy's economy shrank for a fourth consecutive quarter.

The improved sentiment for equities dampened demand for fixed-income securities.

The US Treasury's sale of US$32 billion of three-year notes drew a yield of 0.370 percent, compared with the average forecast of 0.361 in a Bloomberg News survey of seven of the Fed's 21 primary dealers. The bid-to-cover ratio was 3.51, the lowest since April and compared with an average of 3.49 for the past 10 sales.

"It was an adequate auction," Michael Franzese, managing director and head of Treasury trading at Wunderlich Securities in New York, told Bloomberg. "Stocks are doing better and it puts more pressure on Treasuries."

The US will auction US$24 billion in 10-year debt tomorrow and US$16 billion in 30-year securities on August 9.

BusinessDesk.co.nz

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