(eToro Blog) Despite better than expected U.S. employment data, Wall Street sentiment disintegrated on the back of declining European bank shares. Futures were under pressure well ahead of the opening bell as European bourses set the stage for U.S. markets.
Italian banks led the European banking sector lower, with UniCredit SpA down more than 14% after it said Wednesday that its 7.5 billion Euro rights issue would be heavily discounted. Germany’s Commerzbank AG and Deutsche Bank AG were both down around 5% after the UniCredit announcement reignited concerns that both banks might need similar large capital hikes.
In U.S. economic data, jobless claims fell by 15,000 to 372,000 in the week ended December 31st according to the Labor Department. Economists surveyed had predicted that claims would fall by 6,000 to 375,000. For the week ended December 24th, claims were revised up to 387,000 from an originally reported 381,000. The 4-week moving average of claims decreased by 3,250 to 373,250, the lowest level seen since June 7, 2008. Unemployment claims continue to show improvement in employment, which could be confirmed with Friday’s Department of Labor Employment Report.
In a preview to Friday’s report, investors were privy to the private payroll report released by ADP and Macro Economic Advisors. According to ADP, the private sector added 325,000 jobs in December, against expectations of an increase of 175,000. The ADP report attempts to capture the monthly change in non-farm private sector jobs.
The breakdown of the report also showed that small businesses were leading the change in the U.S. labor force. The service sector added 273,000 new employees while the goods-producing sector added 52,000. Given that the service sector is the largest driver of growth in the U.S., the large creation of jobs in this area is positive. In general, December is the best month for private sector job creation; this has historically been the case during 2009, 2010 and now 2011.
In other economic news, ISM reported that its services index moved to a reading of 52.6 from 52.0 in November. The non-manufacturing business activity index remained at 56.2 while analysts had expected the overall reading to hit 53.0 for the month. In the report, employment remained in contraction territory, with the jobs index at 49.4 from 48.9. Meanwhile, inflation rose at a steady pace, with the prices index moving to 61.2 versus 62.5 in November.
Oil prices remained relatively robust despite worse than expected inventory numbers as the fear over an Iran embargo continues to keep oil prices elevated. According to the Department of Energy, crude oil inventories climbed nearly 2.2 million barrels, well above the 200 thousand expected by analysts. Additionally, gasoline and distillate inventories rose as refiners began to stockpile products prior to next spring’s driving season.
Technically, the Nasdaq was the most impressive performer among the major averages. Technology stocks drove the index higher, pushing through short term resistance near 2340. Target resistance on the Nasdaq 100 is seen at 2425 while support on the tech heavy index is seen near the 50 and 200-day moving averages near 2295.
The S&P 500 Index continue to grind higher, inching ever closer to resistance levels near 1290. A break of the 1300 level would target 1350, which were the highs seen in 2011. Support on the large cap index is seen near the 200-day moving average near 1258.
Copyright 2012 eToro Blog
