MarketView for October 8

Summary

Share prices were higher again on Thursday with all the major equity indexes ending the day well into positive territory after a surprising announcement came from Alcoa indicating that earning were considerably higher than expected. As a result, Alcoa gained 1.1 percent to close at $14.35 after moving as high as $15.10. The rally in the stock came a day after the component of the Dow Jones industrial average posted its first profit in a year, the result of cost savings and higher aluminum prices.

The market lost some steam during the afternoon trading session when the latest Treasury bond auction was poorly received, prompting some investors to trim their holdings of dollar assets.

Adding to positive sentiment, retailers posted generally strong same-store sales figures, while the Labor Department said the number of workers filing new jobless claims hit a nine-month low last week.

Shares of home builders rallied on word that Congress was discussing a possible extension of the $8,000 federal tax credit that covers first-time home buyers. The tax credit is set to expire on November 30.

Crude oil futures rose $2.12, per barrel, or 3 percent, to settle at $71.69 a barrel, sending the shares of Chevron up 1.3 percent at $71.45.

Shares of Adobe Systems rose 3.2 percent to $34.33 after Deutsche Bank raised its price target on the company.

On the downside PepsiCo slipped 1.3 percent to $60.39 after the world's second-largest soft drink maker reported weaker-than-expected quarterly revenue on Thursday. However, earnings exceeded expectations.

Jobless Claims Hit 9-Month Low

The Labor Department reported on Thursday that the number of new claims for unemployment insurance fell more-than-expected to a nine-month low last week, suggesting that the labor market was healing despite a setback in September. Initial claims for state unemployment benefits fell by 33,000 to a seasonally adjusted 521,000 claims for the week ended October 3, the lowest level since early January,.

A Labor Department official stated that the seasonal factors utilized often help add to a decline in new claims at the end of a quarter and a rise in new claims at the start of a new quarter.

The claims report will help to calm fears of deterioration in the labor market after data last week indicated that employers cut more jobs in September than had been anticipated by the market.

Meanwhile, the four-week moving average for new claims fell 9,000 to 539,750 last week, declining for a fifth straight week. The four-week moving average is considered a better gauge of underlying trends as it irons out week-to-week volatility.

The number of people collecting long-term unemployment benefits fell 72,000 to 6.04 million in the week ended September 26, the latest week for which the data is available. That was the lowest level since late March and was below market expectations for 6.1 million. This measure has trended lower for three consecutive weeks. However, the decline could also indicate many jobless workers have exhausted their benefits.

The four-week moving average of continuing claims fell by 15,750 claims to 6.1 million. The insured unemployment rate, which measures the percentage of the insured labor force that is jobless, eased to 4.5 percent, the lowest since early April, from 4.6 percent in the week ended September 19.

Crude Rises Above $71 per Barrel

Oil prices rose above $71 a barrel on Thursday, supported by better-than-expected economic data and a weaker U.S. dollar. Sweet domestic crude for November delivery settled up $2.12 at $71.69. In London, Brent crude settled at $69.77, up $2.57.

The dollar fell broadly against a basket of currencies as firmer equity markets fueled demand for riskier assets at the expense of the U.S. currency. A weaker greenback supports oil because dollar-priced commodities become cheaper for buyers using other currencies.

The gains in crude oil futures on Thursday reversed a nearly 2 percent drop in the previous session, when U.S. government data showed a larger-than-expected build in gasoline and distillate stocks last week, fanning doubts over the pace of fuel demand recovery in the world's largest energy consumer.

The Energy Information Administration reported on Wednesday that gasoline stocks rose by 2.9 million barrels last week, nearly three times the build that analysts had expected.

Gold Sets a New Record

Gold rose to a fresh all-time high for a third straight day on Thursday as persistent dollar weakness increased bullion's appeal as a hedge against losses in dollar-denominated assets. Gold also benefited as economic optimism prompted investors to buy assets perceived to be riskier -- everything from commodities to equities -- and to sell the safe-haven dollar and U.S. Treasury bonds.

Gold's gains also lifted other precious metals, with silver reaching its strongest level since July 2008 and palladium hitting a 13-month peak. Spot gold hit a record high of $1,061.20, and was at $1,053.90 an ounce at 1:40 p.m. EDT against $1,043.70 late in New York on Wednesday.

The dollar fell to a 14-month low against a basket of currencies on Thursday as rising equities markets fueled demand for riskier assets at the expense of the safe-haven U.S. currency. From a technical perspective, gold is well-placed for further gains after ending two sessions above its previous record high just above $1,030 an ounce.

Demand for gold-backed exchange-traded funds edged up after waning over the summer months, with the largest, New York's SPDR Gold Trust, reporting a fourth straight day of inflows on Tuesday.

Investors in the fund bought nearly 14 tons of gold, lifting its holdings 1.3 percent, in the week to Tuesday.

Among other precious metals, silver hit a 14-month high, lifted by gold's gains and also, as an industrial metal, benefiting from optimism over the global economic outlook. Spot silver was at $17.77 an ounce against $17.55, having earlier touched a high of $17.92 an ounce.

Platinum and palladium, primarily used in auto catalyst production, also rose in gold's wake. Platinum was at $1,338 an ounce against $1,326, while palladium was at $319 against $311. Earlier it hit a 13-month high of $320.50.

Retail Sales Rising but Oh So Little

Wall Street lost no time in acknowledging the news that retailers last month had their first sales gains in more than a year. A closely watched gauge of sales at major retailers rose 0.1 percent for September. While still tepid, it was the first monthly rise in the International Council of Shopping Centers-Goldman Sachs tally since July 2008.