Positive US Economic Data supports US stocks – 20 Jan 2011

20 Jan 2011: Wall Street tracked declines in equities around the world after growth in gross domestic product in China accelerated to a 9.8% rate in the final quarter of 2010. The faster-than-forecast growth rate bolstered concerns that China would do more interest-rate hikes to control inflation, thereby reducing Chinese demand for commodities and raw materials, potentially derailing the global economic recovery.

US stocks were in constant search of direction the whole day. For every five stocks climbing, nine fell on the NYSE, with nearly 1.2 billion shares traded. Stocks suffered a big loss in the initial trading hours but managed to move up later in the day as better than expected economic data tried to pull up stocks. A strong dollar and concerns that China might go for further tightening of its macro economic policies put a brake on this.

Dow ended lower by 2.49 points (0.02%) at 11,822.8. Nasdaq ended lower by 21.07 points (0.8%) at 2,704.29. S&P 500 ended lower by 1.66 points (0.13%) at 1,280.26. Dow opened the day 23 points lower and slipped by 76 points soon thereafter.

Five out of ten economic sectors ended lower led by telecom, industrial, and technology sectors. Caterpillar led the decliners among Dow components.

The US Labor Department reported that first-time applications for jobless benefits for the week ended 15 January 2011 fell by 37,000 last week to 404,000, mostly reversing a sharp spike earlier this month. Market had expected initial claims in the week ended 15 January to fall to a seasonally adjusted 420,000. The prior week’s claims were revised down by 4,000 to 441,000. New claims for jobless benefits had jumped by a combined 50,000 in the first two weeks of January after falling to a 2 1/2-year low of 391,000 in late December.

The four-week average of new claims through 15 January, meanwhile, fell 4,000 to 411,750, matching the lowest level of the past two years. The moving average is considered a more accurate gauge of employment trends because it smooths out fluctuations in the data caused by special factors such as holidays or bad weather.

Among other reports expected for the day, the Conference Board reported a 1% increase in its index of leading economic indicators for December, ahead of the consensus calling for a rise of 0.6%.The Federal Reserve Bank of Philadelphia’s index of manufacturing activity in the region dipped slightly for January, but the decline was a bit less than expected. Additionally, sales of existing homes jumped 12.3% in December to a seasonally adjusted annualized rate of 5.28 million, beating estimates of 4.88 million.

Nymex crude oil prices ended substantially lower; prices fell despite stronger than expected economic data. On Thursday, crude oil futures for light sweet crude for February delivery closed lower by $2 (2.2%) at $88.86/barrel.

In the weekly inventory report, the EIA reported today that oil inventories increased 2.6 million barrels for the week ended 14 January 2011. Market had expected a decline of 2.2 million barrels. The data came a day later than usual due to Monday’s Martin Luther King Jr. holiday. The EIA also said gasoline inventories added 4.4 million barrels, and supplies of distillates increased 1 million barrels.

Natural gas for February delivery rose 13 cents, or 2.9%, to $4.695 per million British thermal units. The EIA reported a decline of 243 billion cubic feet. Market had expected a drop of 231 billion to 235 billion cubic feet.

In the currency market on Thursday, the dollar index, which weighs the strength of the dollar against a basket of six other currencies rose by 0.36%.

Precious metals ended substantially lower on Thursday, 20 January 2011 at Comex. A strong dollar and better than expected economic reports for the day took glaze away from the bullion metals thereby reducing their appeal as a hedge against inflation. On Thursday, gold for February delivery fell by $23.7 (1.7%) ending at $1,346.5 an ounce on the New York Mercantile Exchange. March Comex silver futures ended lower by $1.33 (4.6%) at $27.47.

Indian ADRs ended mixed on Thursday. Tata Motors and ICICI Bank rose 0.8% and 0.5% respectively. Rediff slipped by 7.7%.

For tomorrow, no economic report is expected. Earning reports will continue to flow in.