Jobless Claims Hit New Highs
An unexpected rise in weekly jobless claims is putting renewed pressure on stocks as traders had sought early safety in the announcement by Saudi Arabian Prince Alwaleed that he will boost his stake in Citigroup to 5%. A surprise rate cut by the Swiss National Bank had helped shares in Europe pare losses. However, oil is approaching $50 per barrel amid expectations of a prolonged and potentially deep global recession and raw material prices continue to trend lower. Elsewhere, Intuit and Dick's Sporting Goods beat the Street's profit estimates but cautioned on guidance. Treasuries are extending gains, with the yield on the three-month T-bill approaching zero. Overseas, Asian markets fell sharply.
As of 8:39 a.m. ET, the December S&P 500 Index Globex futures contract is 7 points below fair value, the Nasdaq 100 Index is 13 points below fair value, and the DJIA is 62 points below fair value. Crude oil is down $2.82 to $50.80 per barrel, and gold is up $8.20 per ounce at $744.20. The overnight LIBOR rate held steady at 0.44%, and the three-month LIBOR rate dipped 2 bp to 2.15%.
Layoffs build
Weekly initial jobless claims increased 27,000 to 542,000, above the Bloomberg forecast of 505,000 and the highest since 1992. The four-week moving average increased 13,000 to 506,500, and continuing claims jumped 109,000 to 4,012,000, a fresh 25-year high. The rise in claims suggests that the labor market and economy are deteriorating at a faster pace as consumers and businesses continue to retrench. With the exception of a quick spike in weekly claims back in 1992, the figure was the worst reading since 1983. The yield on the three month Treasury is trading near zero and the yield on the two-year note is just above 1%, the lowest in at least 30 years, amid a flight to safety. The longer end of the curve continues to gain ground.
At 10:00 a.m. ET, the Philly Fed's Business Activity Index is expected to rise from -37.5 in October to -35.0 in November. A reading below zero marks the line between expansion and contraction and the forecast level suggests that manufacturing in the mid-Atlantic region is quickly contracting. The Leading Index is forecast to drop 0.6%.
Gloomy world markets, Swiss cut rates
European stocks are down about 3% and are trading at the lowest level in over 5 1/2 years as mining and steel companies take the brunt of growing fears that the European and world economy may be on the verge of a protracted recession. Yesterday's late-day sell-off and a grim outlook provided by the FOMC's minutes released yesterday are also playing into the bears' hands. However, an unexpected 100 basis point rate cut by the Swiss National Bank is helping shares pare losses. The SNB said it will be "generous and flexible" as it supplies the Swiss franc money market with liquidity and noted that international conditions have "worsened appreciably." The new target for the three-month Libor now stands at 0.5-1.5%.
Retail sales in the UK fell 0.1% in October, highlighting weakness in the British economy but the drop was less than expected. Peugeot (PEUGY $17) is the latest to announce job cutbacks and said is sees volumes in Europe falling at least 17% in 4Q and about 10% next year. Rolls-Royce (RYCEY $20) will also slash jobs next year because of delays from aircraft makers. But the Dutch-based supermarket Royal Ahold (AHONY $10) is among the few winners after posting a smaller-than-expected decline in 3Q earnings and reiterating its full-year outlook.
Tokyo and Seoul had their first chance to react to the very weak outlook from the Federal Reserve, sending their respective indexes down 6.9% and 6.7%. Japan and South Korea are heavily dependent on exports and the fast-shrinking US economy is likely to have a significant impact on economic activity. Highlighting weakness in Asia and its impact on Japan, the Japanese government reported that exports fell at their fastest pace since December 2001, with exports to China dropping for the first time in over 3 years and sales to Asia declining for the first time in almost seven years. The poor numbers coming out of Asia indicate that the weakness in the developed economies is quickly spreading to emerging markets in Asia.
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