30/07/10 - 01:30
UK Research Team, IG Group
Wall Street opened firmly higher this afternoon, after initial jobless claims in the US fell by more than expected and the release of upbeat earnings continued.
The number of US citizens claiming unemployment benefits for the first time fell by 11,000 to 457,000 for the week ending 24 July. This was slightly better than the 460,000 median estimate from economists surveyed by Bloomberg. However, the number of US citizens that continued to receive benefits rose more than expected to 4.565 million, up from a downwardly revised 4.4484 million the prior week. 'The recent figures have been helped by an unusually small number of auto plant shutdowns in early July, but they have also been hurt by layoffs in housing,' said JP Morgan. [1]
Investors are becoming accustomed to the fact that high US unemployment is going to be with us for some time, so today's employment figures were broadly taken as a positive as they did not deviate too far from expectations. This allowed investors to focus on the string of earnings results that continued today.
By 3:45pm (London time) the Dow Jones Industrial Average had gained 29.22 points (+0.28%) to 10527.10, after reaching 10584.99 earlier in the day. The S&P 500 was slightly higher at 1.68 points (+0.15%) at 1107.81 while the Nasdaq 100 had lost 3.33 points (+0.18%) to 1869.29.
Oil majors Royal Dutch Shell and Exxon Mobil were among the companies to report today. Shell, the largest oil producer in Europe, posted a 15% increase in second-quarter profits to $4.39 billion after the company completed an aggressive restructuring process ahead of schedule. The cost-cutting saved Shell $3.5 billion and trimmed the organisation by 7000 employees. Chief Executive Peter Voser expressed a mixed outlook, saying 'Oil prices have remained firm so far this year, but refining margins, oil products demand and natural gas spot prices all remain under pressure. Our earnings and cashflow have rallied from 2009's lows, but the outlook remains uncertain.' [2] Shell has been increasing its natural gas holdings, which are expected to reach 52% of the firm's total output by 2012. Royal Dutch Shell ADRs rose 1% to $56.47.
Across the Atlantic, Exxon Mobil unveiled second-quarter earnings excluding special items of $7.56 billion, or $1.60 a share. This was an 85% increase on last year's earnings and was ahead of analyst forecasts of $1.46 a share. However, Exxon's headline revenue of $92.48 billion was below expectations of $98.49 billion, which may weigh on the share price this afternoon. Like rival Shell, Exxon is increasing its foothold in natural gas after it completed the purchase of XTO Energy last month, making it the largest natural gas producer in the US. Shares in Exxon edged forward 0.53% to $61.23.
Motorola reported second-quarter earnings that narrowly beat analyst forecasts. The mobile phone manufacturer posted earnings per share of 9 cents on revenue of $5.41 billion, ahead of the median estimate of earnings of 8 cents a share on revenue of $5.2 billion, according to analysts surveyed by Bloomberg. Motorola is making a push in the smartphone segment with its new Droid X model, which has got off to a good start having sold out in stores on its 15 July debut. Chief Executive Sanjay Jha is anticipating the handset business will return to profit in the fourth quarter. Motorola rose 3.13% to $7.88 on the S&P 500.
Consumer staples Colgate-Palmolive and Kellogg also reported earnings this afternoon, however both failed to meet expectations. Colgate-Palmolive slumped 5.91% while Kellogg dropped 3.77%.
Elsewhere, shareholders of Dollar Thrifty were rubbing their hands with glee as Avis Budget has put in a counter-offer to trump an earlier bid made by Hertz. Avis is offering to buy Dollar Thrifty for the equivalent of $46.50 per share, a 17% premium on the offer made by Hertz nearly two months ago. Dollar Thrifty is currently trading at $49.37, a 1.4% increase from yesterday's close, suggesting that investors are expecting Hertz to make a counter-bid to win the deal.
The main theme in currency markets at the moment seems to be a general move away from the US dollar. The US Dollar Index, a measure of the value of the US dollar against a basket of currencies, fell 0.73% by 3:30pm (London time). The euro and Aussie dollar were the major gainers against the US dollar, rising 0.81% and 1.15% respectively. The euro broke the $1.3100 mark against the US dollar this afternoon and is currently trading at $1.3090. Sterling was also stronger against the dollar, trading at $1.5640.
There is no economic data for the UK being released tomorrow, but investors will want to keep a close eye on the US GDP figures released at 1:30pm (London time). Expectations are for annualised GDP to fall from 2.7% to 2.5%. Another important leading indicator to watch is the Reuters/Michigan Consumer Sentiment Index due for release at 2:55pm (London time). Investors will be hoping for a pick-up in confidence after the index plunged to 67 the previous month, the lowest level since August 2009.
Source: [1] Wall Street Journal (29 July, 2010), [2] Royal Dutch Shell website (29 July, 2010)
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