Archive for December, 2009

New jobless claims rise, trade gap narrows (Reuters)

Thursday, December 10th, 2009 | Finance News

WASHINGTON (Reuters) –
The number of U.S. workers filing new claims for jobless benefits rose more than expected last week, but a surprise narrowing in the trade gap in October indicated the economy remained firmly on a steady growth path.

Initial claims for state unemployment insurance rose 17,000 to 474,000 last week, after five straight weeks of declines, the Labor Department said on Thursday.

The rise in claims was blamed on seasonal layoffs in industries such as construction and a rebound in applications that had been held back during the Thanksgiving holiday week.

Analysts, who had expected claims to climb but only to 460,000, said the gain did not alter the trend toward labor market stability. Instead, they focused on a 14th straight drop in a four-week average of claims, which hit the lowest since September last year.

In another report, the Commerce Department said the U.S. trade deficit shrank 7.6 percent to $32.9 billion in October as a weak dollar helped boost exports. Analysts had expected the gap to widen to about $36.8 billion.

"The recovery is sustaining its moderate momentum. The concern has been it would lose momentum and relapse in the way of a double-dip recession. I don't see anything in this or recent data suggesting this," said Stuart Hoffman, chief economist PNC Financial Services Group in Pittsburgh.

U.S. stocks rose on the data, with the major indexes advancing for a second straight day. The blue-chip Dow Jones industrial average (.DJI) ended up 68.78 points or 0.67 percent to 10,405.83.

In another boost to the economy, U.S. households' net worth -- the difference between the value of assets and liabilities -- rose $2.7 trillion to $53.4 trillion in the third quarter, Federal Reserve data showed.

The second consecutive quarterly increase in household wealth could be a confidence booster for consumers shouldering the burden of high unemployment.

"The increase in household net worth will prove to have a positive psychological impact on households that will likely lead to more spending in 2010," said Bernard Baumohl, chief global economist at the Economic Outlook Group in Princeton, New Jersey.

Analysts said the unexpected narrowing in the trade gap, combined with a report on Wednesday showing wholesalers started restocking in October, improved the chances of the economy expanding at a more brisk pace in the fourth quarter than the 2.8 percent annualized rate seen in the July-September period.

Paul Dales, a U.S. economist at Capital Economics in Toronto, said trade could contribute around 1 percentage point to fourth quarter gross domestic product after subtracting 0.8 percentage point in the third quarter.

WORLD TRADE GROWING

In a sign that world trade is slowly shaking off the effects of the global financial crisis, U.S. exports of goods and services hit their highest level since November 2008. Imports also touched their highest point since last December.

The smaller-than-expected trade gap is good news for the Obama administration, which sees export growth as an avenue for creating jobs.

With the U.S. unemployment rate hovering at its highest levels in a quarter century, the weak jobs market is a political sore point for Obama and his fellow Democrats.

Still, the jobs market does appear to be recovering. A report last week showed the jobless rate edged down to 10 percent in November from a 26-1/2-year high of 10.2 percent, while employers cut the fewest jobs since recession struck in December 2007.

Even though jobless claims rose last week, applications for benefits have dropped from lofty levels in March. The four-week average, which provides a better view of underlying trends, dropped to 473,750 last week from 481,500 the prior week.

Analysts said that was a clear signal the economy would soon start creating the much needed jobs to fuel the recovery.

"I believe when we get down below 450,000, you are in a position where you're going to get some payrolls jobs growth. We are on the cusp," said PNC Financial Services' Hoffman.

The number of workers still collecting benefits after an initial week of aid dropped 303,000 to 5.16 million in the week ended November 28, the lowest level since February. The decline, however, was largely due to people exhausting their benefits and moving to emergency unemployment programs.

"These developments seem to be consistent with the broad sense that new layoffs are slowing significantly, but those who lost their jobs during the recession are still finding it very difficult to get work,' said Stephen Stanley, chief economist at RBS in Greenwich, Connecticut.

"The labor market is starting to stabilize, but the level of unemployment is very high."

The insured unemployment rate, which measures the percentage of the insured labor force that is jobless, fell to 3.9 percent in the week ended November 28 -- the lowest since February -- from 4.1 percent the previous week.

(Editing by James Dalgleish)

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World stocks still weak but Europe rebounds (Reuters)

Thursday, December 10th, 2009 | Finance News

LONDON (Reuters) –
World equities were generally weaker on Thursday, adding to five sessions of losses, although Europe rebounded after recent hits over some of the region's more vulnerable economies.

Globally, investors have been closing books ahead of year-end in a climate of concern about the credit worthiness of various troubled economies.

Ratings agency Standard & Poor's on Wednesday warned that Spain risks a debt downgrade in two years if the government does not take tough action on its fiscal deficit.

Fitch Ratings has already downgraded Greece, while Moody's cut the ratings of six Dubai-linked issuers after concluding that no "meaningful" government support would be provided to top firms such as DP World.

"The market will remain volatile until the end of the year," said Luc Van Hecka, chief economist at KBC Securities.

"Most of the major long-term investors have already closed their books for the rest of the year. The market is really in the hands of traders," he said.

MSCI's all-country world stock index (.MIWD00000PUS) was flat to lower on the day, having lost more than three percent since hitting a new year high a week ago.

The pan-European FTSEurofirst 300 (.FTEU3) was up 0.7 percent.

REBOUNDING DOLLAR

The overall mood has lifted the dollar, which is up some 2 percent over the past week against a basket of currencies (.DXY). It was slightly higher on Thursday.

The euro was down a little against the dollar. The Australian and New Zealand dollars jumped on expectations of higher interest rates.

"Interest rates are becoming a more important factor and the market is looking more at fundamentals now," said You-Na Park, Commerzbank analyst in Frankfurt.

"With the troubles in Greece and Spain there are a lot of difficulties in the euro zone, which is one reason why the euro is weak," she said.

The euro was trading at $1.4704, not far from November lows. Euro zone government bonds were flat.

(Additional reporting by Atul Prakash and Jessica Mortimer, editing by Mike Peacock)

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U.S. House to debate financial regulation overhaul (Reuters)

Wednesday, December 9th, 2009 | Finance News

WASHINGTON (Reuters) –
The U.S. House of Representatives will debate on Thursday the most sweeping changes to financial regulation proposed since the Great Depression, including broad new government powers over large banks and tighter regulation of capital markets.

President Barack Obama and congressional Democrats see the reforms they are backing as crucial to preventing a repeat of last year's financial crisis that led to taxpayer bailouts of companies such as AIG and Citigroup.

Legislation before the House would set up an inter-agency council to police systemic risks in the economy and create new protocols for dealing with large, troubled financial firms to prevent such debacles as last year's Lehman Brothers collapse.

For the first time, the $450-trillion over-the-counter derivatives market -- dominated by firms such as Goldman Sachs and JPMorgan Chase -- would be regulated, including credit default swaps at the root of AIG's problems.

Curbs would be imposed on executive pay that encourages unwise risk-taking, while lenders would have to retain risk in loans they securitize for sale on the secondary debt market.

The insurance industry would for the first time be monitored by a federal office, while a new agency would be formed to protect financial consumers, and hedge funds would be forced to register with federal regulators.

"Wall Street melted down and Main Street paid the price. This cannot happen again," said Democratic Representative Scott Murphy in debate that began late on Wednesday evening.

Republicans have attacked the bill as a measure that would codify bailouts in law and destroy jobs, while setting up new government bureaucracies and piling costs on businesses.

"Call it what you want to, but it's socialism," said Representative Spencer Bachus, top Republican on the House Financial Services Committee, during floor debate.

LOBBYISTS PUSH BACK

An army of lobbyists from banks and Wall Street have worked for months to block, water down and delay the bill, which would threaten the profits of many financial services firms.

Reformers have reduced their goals since earlier this year, abandoning a wholesale reorganization of existing regulatory agencies as too politically difficult, for instance.

But the 1,279-page House bill proposes steps that would have been seen as radical not long ago, such as exposing Federal Reserve monetary policy to unprecedented congressional scrutiny, and empowering regulators to break up even solvent financial firms if they threaten economic stability.

Democratic Representative David Scott said charges of "socialism" were unfair. Republicans made the same accusations decades ago, he said, when the Roosevelt administration set up the Securities and Exchange Commission and other reforms during the Great Depression. "This isn't socialism," Scott said.

In a 235-177 vote late on Wednesday, Democrats pushed through a procedural rule for the bill, hammered out over months of discussion and compromise. All Republicans voting on Wednesday opposed the procedural rule.

As many as 30 amendments were expected to be debated on Thursday, said House aides, with leaders hoping to bring the measure to a final vote by Friday. House approval, which analysts widely expect, would move the reform agenda to the Senate, where debate will probably go well into 2010.

(Editing by Tomasz Janowski)

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