Renewed violence and unrest in Egypt outweighed improved employment data, sending US stocks lower after the opening bell.
European investors were also disappointed by an uneventful ECB press conference, with the central bank leaving interest rates unchanged and declining to give any real guidance on interest rates.
US jobless claims, factory orders
The weekly report on US jobless claims showed that the number of Americans filing for initial unemployment benefits continued to fall. Applications dropped by 42,000 to 415,000 for the week to 29 January, which was a bigger fall than forecast in a Bloomberg survey, which had predicted claims of 420,000. The four-week moving average rose slightly, from 429,500 to 430,500 last week. Continuing claims also dropped, falling 84,000 to 3.93 million. Although the figures are promising when taken together with yesterday’s ADP report, tomorrow’s non-farm payrolls data will be the main event, since this measure is widely regarded as one of the most authoritative indicators of the health of the US jobs market.
Activity outside the manufacturing sector also increased in January, according to the Institute for Supply Management (ISM). The ISM’s index rose to 59.4 from 57.1 a month earlier, having been expected to shuffle back to 57. Although the index is not as important as the measure of manufacturing activity, the data helps to add to the picture of an improving US economy.
ECB interest rate decision
On the currency markets, this afternoon’s interest rate decision prompted a sharp drop in EUR/USD as the European Central Bank held rates steady at 1%. The single European currency slumped 1% in the aftermath of the press conference, in which bank president Jean-Claude Trichet said that officials remained concerned about rising inflation, even while threats to growth lingered. Trichet’s catchphrase today was ‘very close monitoring is warranted’, and this was not enough to satisfy those investors that had expected a noticeable increase in hawkishness. Trichet added that rising energy and commodity prices were, in the main, to blame for price rises, and that price developments would remain in line with price stability over the medium term. For the moment at least, it looks as if interest rate rises in the eurozone are a distant prospect.
US equities – Dow Chemicals
By 3.30pm (London time), the Dow Jones had fallen 34.73 points (0.29%) to 12005.43, and the S&P 500 was 6.05 points (0.46%) lower at 1297.98.
Dow Chemicals, the largest US chemical manufacturer, edged up 0.14% to $36.69 after higher sales in all its divisions helped it post fourth-quarter earnings that were ahead of expectations. Net income was 37 cents per share, and stood at 47 cents per share excluding one-off items. Thomson Reuters forecasts had been for income of 37 cents per share. Chief executive Andrew Liveris said that growth would continue in 2011, with markets such as China, India, Brazil and Eastern Europe driving growth.
UK shares – Vodafone, TUI, F&C
London markets failed to make any headway during the afternoon, with mining stocks weighing heavily on the leading index. By 3.20pm (London time), the FTSE 100 was down 0.65% at 5961.26. Falls of 1% or more were common among big mining companies, with Vedanta and Fresnillo down 2%.
Vodafone, the global communications giant, expects full-year profit to be at the top end of expectations. Trading remained strong in the company’s third quarter, with revenue growing 3.5% to £11.9 billion, with Turkey and India leading the way. However, revenue in Spain dropped by 7% over the period. Adjusted operating profit is now expected to be at the top end of the £11.8 to £12.2 billion range set out in November. Vodafone shares were down 1.2% to 175.05p. The Egyptian crisis also engulfed Vodafone, with allegations emerging that the Egyptian government had hijacked the company’s network to send text messages supporting President Mubarak.
Shares in TUI Travel were down 1.58% to 243.1p as the firm said that turmoil in North Africa is expected to cost the company up to £30 million. Revenues in the three months to December rose to £2.7 billion, but the loss of business in Tunisia and Egypt provides an unwelcome element of uncertainty for trading in the short term. Oddly, the group said that it had cancelled all flights to Egypt from Germany and France, but added that it was still flying customers from the UK to Red Sea resorts.
In an echo of David and Goliath, AIM-listed investment company Sherborne Investors has succeeded in deposing two members of the board of F&C Asset Management. Sherborne was able to win overwhelming support at today’s Extraordinary General Meeting, with three of its directors appointed to the company’s board. Sherborne believes that F&C is too reliant on performance fees, rather than on recurring management fees. F&C shares jumped 4.39% to 89.25p as the results of the meeting emerged.
