Disappointing US labour market data, persistent worries about the Greek economy and speculation about a rate hike in China weighed on Wall Street's opening.
Anyone hoping to see further signs of a recovery in the US labour market would have been disappointed. The number of Americans filing for first-time jobless benefits (initial jobless claims) unexpectedly increased by 24,000 to 484,000 in the week ended April 10, the highest level since February 20, while the four-week moving average for initial jobless claims, a less volatile gauge, increased by 6,750 to 457,750 over the same period.
Meanwhile, the number of Americans claiming jobless benefits for more than a week (continuing jobless claims) increased by 73,000 in the week ending April 3 to 4.64 million, and the number of people who used up their traditional benefits and are now collecting emergency benefits, and extended payments rose by 162,101 to 5.97 million in the week ended March 27. The unemployment rate among people eligible for benefits, which tends to track the jobless rate, climbed to 3.6% in the week ended April 3 from 3.5%.
Should we worry? A spokesman from the Labour Department explained that the increase in jobless benefits was predominantly due to administrative factors reflecting post-Easter volatility and not because of underlying economic reasons.
Persistent worries about the Greek economy and a report that showed a rapid acceleration in China's first-quarter economic growth, also weighed on stock markets today.
The official data released earlier today showed China's GDP growing at a year-on-year rate of 11.9% in the first quarter, the fastest pace since 2007 and marginally ahead of the 11.7% median gain shown in a Bloomberg survey of estimates. This led investors to speculate that the world's biggest consumer of commodities will be forced to raise interests in order to prevent its economy from overheating – a development that would (at least in theory) weaken demand for global commodities.
By 3.40pm (London time), July high-grade copper futures traded around 0.20% lower at $3.6255 per pound, while June gold futures retreated 0.23% to $1,157 per troy ounce. The drop in metal prices weighed on miners, with Freeport-McMoRan Copper & Gold and Barrick Gold both down 0.4% to $85.02 and $40.51 respectively.
At around the same time, US equity markets started to bounce back, with the Dow Jones Industrial Average trading at 11125.22, representing a 2.11-point (+0.02%) increase over its previous close. In addition, the S&P 500 Index climbed 1.45 points (+0.12%) to 1212.10 and the Nasdaq 100 rose 6.26 points (+0.31%) to 2035.08.
The release of encouraging US manufacturing reports helped the stock market recover. Manufacturing in the New York region expanded at a faster-than-expected pace this month, continuing to support the view that the US manufacturing sector is supporting the country’s economic recovery.
The Federal Reserve Bank of New York's general economic index rose to 31.9 in April, exceeding the 29.2 median forecast shown in a Bloomberg survey. This compares with a reading of 22.9 in March.
In addition, the Fed's inventory index climbed to 11.4 from 4.9, implying that factories are increasing their stockpiles – a good sign because it suggests they anticipate stronger demand. As a matter of fact, the Fed's regional expectations index, a gauge measuring the outlook six months time, rose to 55.7 from 54.3 in March. A separate report from the Philadelphia Federal Reserve showed that manufacturing in the region expanded as well, with the index coming in at 20 this month from 18.9 in March. Manufacturing accounts for about 12% of the US economy.
In equity news, United Parcel Service (UPS) rallied 6.2% to $69.53, after reporting a first-quarter profit that beat analysts' estimates and raising its 2010 earnings guidance, citing rising demand for overseas shipments. This development helped peer FedEx Corp rise 3.2% to $97.
Fast-food restaurant operator Yum Brands was also in demand, rallying over 4% to $43.40, after saying its first-quarter earnings jumped 11%, helped by strong sales in China.
American Superconductor was another star performer, up 6.8% to $31.04, after the manufacturer of high voltage transmission lines was upgraded from 'hold' to 'buy' at Deutsche Bank.
Separately, shares of oil and gas explorer Mariner Energy surged 40% to $25.47 this afternoon, after announcing that it will be acquired by Apache Corp for $2.7 billion in cash and stock.
Looking ahead, investors should watch out for the quarterly results from Advanced Micro Devices and Google, due after the closing bell. AMD's shares were up 2.2% to $10.10, while Google's rose 1.4% to $597.42, implying the market is confident these companies will unveil encouraging reports later today.
