Wall Street continued to build on the prior day's gains, as a bigger-than-expected drop in initial jobless claims and a narrower trade deficit appeased concerns about US economic growth.
The US economy showed signs of improvement this afternoon, after initial jobless claims fell more than expected last week. The number of US citizens claiming first-time unemployment benefits fell to 451,000 in the week ending 4 September, from an upwardly revised 478,000 the week before. A Bloomberg survey forecast the number of claims to remain little changed at 470,000. Continuing jobless claims also fell to 4.478 million, down from an upwardly revised 4.480 million the prior week.
Today's figures should be taken with a pinch of salt, however, since the jobless claims for nine states had to be estimated. This means that we could be in for a significant revision when next week's batch is released.
Further boding well for the US economy was a narrowing of the US trade balance in July. The trade deficit fell significantly in July, contracting to $42.8 billion from a downwardly revised $49.8 billion the previous month. Exports increased 1.8% for the month thanks to a strong pickup in aeroplane sales and associated parts. In contrast imports fell 2.1%, as Americans bought less clothes and vehicles from overseas.
The reduction in unemployment claims and the shrinking trade balance are in line with the view that US economic conditions are still improving, albeit at a very slow pace. With the lead up to the November mid-term elections, the Obama administration will be pushing to announce further stimulus measures to revive the economy, with $50 billion in infrastructure spending already announced, a proposed extension of the Bush tax cuts for middle-class Americans, and the extension of tax credits for research and development. These measures could bode well for equities as long as they are not blocked by the opposition in congress. In the meantime, due to uncertainty there is likely to be a lot of noise in the short term, however once a clearer picture is obtained investor confidence should start to recover.
By 4pm (London time) Wall Street had risen 52.75 points (+0.51%) to 10439.76, the US SPX 500 had gained 7.98 points (+0.72%) to 1106.85 and the US Tech 100 was 8.50 points higher (+0.45%) at 1888.50.
Banks were the among the best performing sectors today, after a Norwegian sovereign wealth fund, the second-largest in the world, said that Greece would not default on its debt. The comments came as Greece's Finance Minister reassured investors that Greece is on track to meet its budget targets and that Greek bonds should no longer be feared. Easing concerns over European sovereign debt issues saw Bank of America rise 3.52%, JPMorgan gain 2.86% and Morgan Stanley climb 3.66%.
Adobe shot up almost 9% on the open after Apple announced that it would be relaxing its restrictions on application development for the iPhone and iPad. This opens the way for Adobe's Flash to function on Apple's portable devices, an issue for which Apple has received much criticism from consumers. Shares in Apple also rose 1.23% to $266.15.
Meanwhile, fast food chain McDonald's reported an increase of 4.9% in same-store sales from a year ago. This narrowly missed the median estimate of 5% from analysts surveyed by Bloomberg. Sales in Europe also missed the mark, rising only 2.2% instead of the 4% that was forecast. Shares in McDonald's retreated 3.1% to $73.72.
