Business

Markets get lift from US jobs figures

Friday, October 12, 2012    

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LONDON, England — A surprisingly big drop in weekly US jobless claims helped shore up financial markets yesterday despite a downgrade of Spain's sovereign credit rating.

The Labour Department reported that claims last week fell by 30,000 to 339,000, the lowest level since February 2008. The figures were another indication that the world's largest economy is over its summer soft patch and may be gaining traction.

"Are things that much better all of a sudden? Perhaps. But we're going to wait for some corroborating data points before making a judgment one way or the other," said Dan Greenhaus, chief global strategist at BTIG.

Following the figures' release, so-called riskier assets — such as stocks, the euro and oil, which investors tend to buy when more optimistic — posted solid gains.

In Europe, Germany's DAX closed 1.1 per cent higher at 7,281.70 while the CAC-40 in France rose 1.4 per cent to 3,413.72. The FTSE 100 index of leading British shares ended 0.9 per cent higher at 5,829.75.

In the US, the Dow Jones industrial average was 0.2 per cent higher at 13,372 while the broader S&P 500 index rose 0.4 per cent to 1,438.

The euro was up 0.6 per cent at US$1.2933, while the price of a barrel of benchmark oil rose US$1.32 to US$92.57 a barrel.

The optimism generated by the jobless claims data helped investors brush aside Wednesday's downgrade of Spanish government debt by the Standard & Poor's agency.

S&P reduced its rating on Spain from BBB+ to BBB-, the lowest investment grade level. A non-investment grade would make it more expensive for the Spanish government to borrow money as some investors, like pension funds, would have to sell the bonds from their portfolios.

S&P warned of the impact of the deepening economic recession in Spain and rising levels of social discontent, adding that the government's hesitation in requesting help was "potentially raising the risks to Spain's rating".

The Spanish government has so far refused to tap a new European Central Bank bond-buying facility that has been largely designed to keep a lid on the country's borrowing rates.

Some analysts think the downgrade will help push the government to finally request the help, despite the political humiliation that would represent.

"Investors appear to be drawing the conclusion that this coupled with increasing yields in recent sessions leaves Spain no option but to formally request a bailout," said Mike McCudden, head of derivatives at Interactive Investor.

The downgrade prompted a retreat across much of Asian financial markets before the mood improved during the European trading session.

Though the crisis in the eurozone remains a key focus of attention in the markets, investors are also looking for direction from the third quarter US corporate earnings results season. JPMorgan Chase & Co takes centre stage Friday when it will be the first major bank to report.

Earlier this week, aluminum company Alcoa Inc kicked off the earnings season with upbeat figures but warned that its outlook was being hurt by waning demand, particularly in Asia.

Earlier in Asia, Japan's Nikkei 225 index fell 0.6 per cent to finish at 8,546.78. South Korea's Kospi shed 0.8 per cent to 1,933.09 but Hong Kong's Hang Seng, however, rose 0.4 per cent to 20,999.05.

Mainland Chinese shares lost ground, with the Shanghai Composite Index shedding 0.8 per cent to 2,102.87 while the Shenzhen Composite Index lost 1.5 per cent to 867.21.

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