Thursday, June 10, 2010

Markets surge on jobless claims data

Stocks zoomed out of the gate & remain near their highs. Dow is up 227, advancers over decliners 7-1 & NAZ rose 45. The jobless claims report was encouraging (although not really all that great) & fears about the demise of BP (BP) have lessened. Banks participated in this rally but the Financial Index is still in the low end of its 186-226 trading range.


% Change

The Alerian MLP Index shot up 3¾ to 296, but is still below its 304 high a month ago. The REIT index rebounded 5 to 196 after extreme punishment earlier this week. Junk bond funds were up maybe 1%. The VIX, volatility index, fell 3+ to 30 on easing fears. As expected Treasuries sold off, the yield on the 10-year Treasury bond rose 7 basis points to 3.26%, still in low territory over the last yer.

Alerian MLP Index --- 2 weeks

Dow Jones REIT Index --- 2 weeks

Indications about strength in the economy got traders to bid up oil prices, taking above its 70-75 trading zone. But it will have to reach 80 to record a meaningful breakthrough. Gold settled back on strength in the stock markets.

CLN10.NYM...Crude Oil Jul 10...75.92 T...Up 1.54

GCM10.CMX...Gold Jun 10...1,218.80 ...Down 9.70

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Claims for jobless benefits fell for the 3rd straight week but remain elevated, suggesting the labor market is still sluggish. Initial claims fell only 3K to 456K, nearly the same as in Jan. But the tally of laid-off workers continuing to claim jobless benefits fell the most in almost a year. That could be because more people are finding work or they have exhausted their initial state benefits! Continuing claims fell by 255K to 4½M, the lowest since Dec 2008. First-time claims have hovered near 450,000 since the beginning of the year after falling steadily in the 2nd half of 2009. It is believed that the claims # should fall below 425K before rehiring will become a significant factor in the recovery. Nearly 5.4M are receiving extended benefits. All told, about 9.8M drew unemployment. That total is likely to drop in the coming weeks as the extended benefit program expired in early Jun & Congress is debating whether to continue it. About 325K will lose unemployment aid by the end of this week due to the cutoff & that could grow to 1¼M by the end of Jun if the extension isn't passed. The chart below tells the story very well.

Jobless Claims in U.S. Exceed Estimates, Indicating Firings Still Elevated

Jobless claims - 1 year

The European Central Bank (ECB) left its key interest rate unchanged at 1% & stressed that its program to buy gov bonds to ease the debt crisis is only temporary. The decision on interest rates was widely expected. It has not been adjusted since May 2009. But the bond purchase program has not been unanimously supported by the ECB governing council. The ECB expects the eurozone economy to keep growing "at a moderate pace" in an "environment of continued tensions in some financial market segments and of unusually high uncertainty." Actions taken by govs to tackle budget deficits are welcomed by the ECB. Countries were urged to stick to their commitments. The central bank expects the economy to expand 1% this year compared with a previous forecast of 0.8%. It will grow 1.2% next year, lower than an earlier projection of 1.5% because of weaker domestic demand. The ECB raised its inflation forecasts.

Trichet Says ECB Will Keep Buying Government Bonds to Fight Market Crisis

BP rebounded, up 2.88 to 32.08 with a 10% yield (whatever that means) following yesterday's 16% drop. But the stock is down almost 50% from its yearly highs. US politicos are pressing BP to halt divs so it will be able to pay greater compensation for workers & companies devastated by the massive Gulf of Mexico oil spill. Its bonds yield 7½%, near junk bonds yields.

BP Trades as Junk, Credit-Default Swaps Invert: Credit Markets

BP --- 2 weeks

Stocks are having their day in the sun. My assessment is that the jobless report is vastly overrated. That figure has to drop further to show substantial strength in the recovery. Extending unemployment benefits is tricky. If benefits are not extended, the recovery will be damaged & if they are, the deficit will be made worse. Markets were also encouraged by the € rising over $1.21, again still at a dreary level because European financial problems will drone on.

Dow Jones Industrials --- 2 weeks

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