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Market Comment (10th Nov 2010, 15:45)

A slew of positive US economic news was not enough to lift Wall Street this afternoon. US stocks tracked European equity markets lower on concerns about eurozone debt and further monetary tightening in China.

The number of Americans filing initial claims for unemployment benefits fell to its lowest level for four months, according to the Labour Department. In the week to 6 November, new applications fell by 24,000 to 435,000, below the 450,000 predicted in a Bloomberg survey. The four-week moving average also fell, to 446,500 from 456,500, reaching its lowest level since September 2008. In a third piece of good news, the number of workers continuing to claim benefits also fell, declining 86,000 to 4.3 million in the last week of October. Fewer layoffs are the first step to an improvement in the labour market, but the improvement will need to continue for some time yet to have any real impact on the obstinately high unemployment level.

A narrowing American trade deficit for September showed that there are some benefits from a declining US dollar, as exports reached their highest level in two years. The gap shrank by more than expected, by 5.3% to $44 billion, Bloomberg surveys having produced a forecast figure of $45 billion. Exports, which increased 0.3%, were boosted by demand for aircraft, generators and food according to figures from the Commerce Department. The outlook for US exports has continued to improve, thanks to increased infrastructure investment by economies such as China and Brazil, and rising affluence enables consumers in emerging markets to buy goods and services from abroad.

In a busy day for US economic data, the Mortgage Bankers Association reported that its index for home loan applications jumped 5.8% in the week to 5 November. The increase was the third in a row, and further encouraging news showed that refinancing activity also increased by 6%, spurred by low mortgage rates. Investment bank Nomura cautioned that 'although the stabilization [sic] suggests the post-tax credit bust in home sales is probably over, the lack of recovery indicates overall home sales may remain depressed for some time'. Complicating the picture even more is the continued existence of a foreclosure moratorium at banks such as JP Morgan and Bank of America. The property market will continue to be subdued until repossessed properties come back on the market, a process that could take some time.

Portugal became the second eurozone country in as many days to undertake a government debt auction. Lisbon successfully reached its target for a sale of $1.74 billion in six- and ten-year bonds, but, as with Greece yesterday, the Iberian nation was forced to pay higher rates. The yield on ten-year bonds rose from 6.24% to 6.8%, and the six-year variety saw its yield jump from 4.37% to 6.15%. However, there was relief that the rates remained below the 7% level considered critical by markets, according to Portuguese firm Banco Carregosa. Portugal's finance minister said that the country must now concentrate on cutting its budget deficit, in order to avoid asking for financial aid from the IMF.

In a sign that it remained worried about inflation, the Chinese central bank ordered the country's largest banks to increase their reserve requirement ratios. The ratio will rise by half a percentage point next week to 17.5%, a move which will remove funds from the Chinese economy and help relieve inflationary pressures in the domestic housing market. As usual, the Chinese offered no commentary or explanation for the decision.

The US dollar continued to appreciate during the afternoon against the euro and yen, thanks to the increased stability in the American labour market, which was suggested by the jobs report. The euro dropped back to $1.3760, and the dollar gained to a high of ¥82.57.

By 3.30pm (London time), the Dow Jones had fallen 78.94 points (0.7%) to 11,267.81 and the S&P 500 was down 8.31 points (-0.68%) to 1205.09. The Nasdaq 100 had lost 13.20 points (-0.61%) to 2163.68.

Macy's, the second-largest chain of department stores in the US, announced a 6.6% increase in sales to $5.62 billion for the third quarter. Earnings stood at 8 cents per share, compared to a loss of 3 cents last year. The figure is double than what was predicted in a Bloomberg survey. The improvement in sales was due to tailoring outlets to suit local tastes, as well as a general improvement in consumer spending, as the worst effects of the recession begin to wear off. Shares in Macy's were unmoved at $25.22.

Shares in aircraft manufacturer Boeing dived 3.4% to $66.94, after problems with a test flight of its new 787 Dreamliner aircraft were reported. The plane was forced to land after a fire broke out on board, with Bloomberg reporting that some electrical power had been lost, causing some systems to cease functioning. Boeing denied these reports, saying that additional tests would be performed at company facilities in Seattle.

UK markets remained in the red during the afternoon, as large-cap mining stocks were hit by a general retreat in commodity prices and the news regarding Chinese banks. Silver and palladium were the heaviest fallers, both down 6%, while BHP Billiton, Rio Tinto, and Xstrata all dropped by 3%. By 3.15 pm (London time), the FTSE 100 had slumped 64.82 points (1.1%) to 5810.37.

Finnish nickel and zinc miner Talvivaara Mining advanced 5.5% to 580.5p, after it reported record production figures for the third quarter of 2010. Nickel production was 18% higher at 3,211 tonnes, while that for zinc jumped 36% to 7,557 tonnes. The firm also moved into the black for the third quarter for the first time, reporting an operating profit of €10.9 million. The only disappointment was a cut in the full-year production target, which was reduced to 11-13,000 tonnes for nickel and 28-30,000 tonnes for zinc. Previous guidance had been for output of 15,000 tonnes and 35-40,000 respectively.

Engineering software company Aveva dropped 3% to 1472p, despite a 12% rise in half-year revenue to £78.5 million, ahead of broker Panmure Gordon's forecast of £77 million. Adjusted pre-tax profit climbed 12% to £24.6 million, and annual fees were reported to be increasing in line with expectations. The star performer among the firm's units was the Americas division, which saw a 23% jump in revenue, thanks to strong demand from Brazilian oil firm Petrobras.

British Airways had to endure further bad news today, as its talks with recalcitrant unions hit a stumbling block. Yesterday BA, along with ten other European airlines, was fined by the EU Commission for its role in an air cargo cartel that had colluded in fixing fuel surcharges. The Unite union declared the most recent offer in the tortuous negotiations a 'step too far', adding that it would not be recommending the offer to members. Unite said that it was unhappy with demands that would see the union drop all outstanding legal claims arising from the long-running dispute, and clauses that would give BA the right to withdraw travel concessions from staff in the future. The fall-out raises the prospects of further strikes, with 22 days of industrial action already having occurred this year. BA shares were 0.11% lower at 278p.

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Market Comment (10th Nov 2010, 15:45)

A slew of positive US economic news was not enough to lift Wall Street this afternoon. US stocks tracked European equity markets lower on concerns about eurozone debt and further monetary tightening in China.

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