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US stocks fluctuate on ECB measures before US jobs data

LiveMint logoLiveMint 05-06-2014 Jonathan Morgan

Frankfurt: US stocks fluctuated, with benchmark indexes trading near record levels, as optimism over European Central Bank (ECB) measures to counter deflation faded and investors awaited Friday’s employment report.

Sprint Corp dropped 4.8% after people with knowledge of the matter said it is nearing a price agreement for a potential acquisition of T-Mobile US IncTwitter Inc added 1.7% after Pacific Crest Securities started coverage of the shares with a rating similar to buy. Ciena Corp surged 17% as earnings beat analyst estimates.

The Standard & Poor’s 500 Index fell less than 0.1% to 1,927.48 at 10:33 am in New York, erasing an earlier gain of 0.2%. The gauge closed at an all-time high on Wednesday. The Dow Jones Industrial Average rose 7 points, or less than 0.1%, to 16,744.53. The Nasdaq Composite Index added 0.1%. Trading in S&P 500 companies was 19% below the 30-day average for this time of day.

The focus of attention is now going to be on Friday’s jobs number, Bruce Bittles, chief investment strategist at Milwaukee-based RW Baird & Co., which oversees $110 billion, said in a phone interview. Most of the ECB action was anticipated and already baked into the market.

ECB president Mario Draghi reduced the deposit rate to minus 0.10% from zero, making the institution the world’s first major central bank to use a negative rate. Policy makers lowered the benchmark rate to 0.15% from 0.25%.

Stimulus measures

Draghi said the ECB will introduce new, targeted offerings of liquidity to banks to encourage them to lend money to the real economy. Officials will also start work on purchases of asset-backed securities, he said. The ECB will extend its current offerings of unlimited cash to banks and will suspend the sterilization of its bond purchases at the start of the euro crisis in a bid to boost liquidity in money markets, Draghi said.

The central bank cut growth forecasts for 2014, while raising its target for euro-zone gross domestic product in 2015.

The stimulus from Europe is a positive thing, especially when you compare it to the fact that the US is starting to ease up, Joe Bell, senior equity analyst at Cincinnati-based Schaeffer’s Investment Research Inc., said in a phone interview. Stimulus is being added from a different market.

In the US, data showed fewer Americans filed applications for unemployment benefits over the past month than at any time in seven years, a sign the labour market continues to strengthen. The four-week average for jobless claims fell to 310,250 in the period ended 31 May, the lowest since June 2007, a labour department report showed on Thursday in Washington.

Jobs data

A private report on payrolls on Wednesday indicated companies in the US added fewer jobs than forecast in May, before Friday’s labour department data on employment. That report may show private payrolls, which exclude government agencies, increased 210,000 in May after a 273,000 gain in the month prior, according to the median estimate in a Bloomberg survey.

Fed officials are watching the labor market as they move to complete their bond-purchase program late this year and start considering the timing of the first interest-rate increase since 2006. Central-bank stimulus has helped propel the S&P 500 higher by as much as 185% from its bear-market low in March 2009.

The Fed said in its Beige Book business survey yesterday that the economy expanded at a modest to moderate pace last month as auto sales led household spending and the labour market improved. The survey, released two weeks before policy makers meet in Washington, supports Chair Janet Yellen’s view that the economy is rebounding from a 1% contraction in the first quarter caused largely by harsh winter weather.

Market rebound

The S&P 500 has rebounded 6.2% since a selloff in small-cap and Internet shares spread to the broader market, dragging the index to a two-month low in April. It advanced 2.1% in May for a fourth consecutive monthly increase. The measure trades at 16.3 times the projected earnings of its members, up from a multiple of 14.8 at the start of February.

The Chicago Board Options Exchange Volatility Index rose 0.5% to 12.14 on Thursday, for its fourth straight day of gains. The gauge of US equity volatility known as the VIX dropped to 11.36 on 23 May, its lowest level since March 2013.

Five out of 10 major industries in the S&P 500 declined, with phone and raw-materials companies dropping the most.

Sprint dropped 4.8% to $8.95. The third-largest US wireless carrier is nearing an agreement that could value T- Mobile US Inc. at almost $40 a share, according to people with knowledge of the matter. The deal covering the price, capital structure and termination fee could be announced as soon as July, the people said.

T-Mobile fell 2.4% to $33.45.

Twitter rose 1.7% to $33.47. Pacific Crest rated the shares outperform, projecting a gain in their price to $45 in 12 months.

Ciena surged 17% to $22.20. The provider of fiber- optic networking gear for carriers such as AT&T Inc. reported second-quarter revenue and profit that exceeded analyst forecasts. BLOOMBERG

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