Good bid to European debt, Claims drop

European debt is seeing a good morning after Spain had a very successful set of auctions of maturities ranging from 5 to 10 yrs. They sold 6b euros worth, well above the target of 3.5b. The Spanish 2 yr yield is falling to a 7 week low and in sympathy, Italy’s 2 yr yield is down by 26 bps, Belgium’s and Austria’s 2 yr yields are at 5 week lows and the French 2 yr is back below 1% and if it closes below 1%, it would be the 1st time since Sept. The mfr’g and services composite index for the euro zone unexpectedly rose a touch in Dec but remained below 50 at 47.9. Inflation remained elevated in the euro zone as CPI rose 3.0% y/o/y for a 3rd straight month. In Asia, the Shanghai index continues to suffer, falling for the 10th day in the past 12, down 6.5% month to date after Foreign Direct Investment fell 9.8% y/o/y in Nov, the 1st decline since July ’09. The flash HSBC mfr’g PMI did tick up to 49 vs 47.7 in Nov but remains below 50 for the 5th month in the past 6. Japan’s Q4 mfr’g Tankan report fell to -4 from +2, below expectations of -2.

Encouragingly, Initial Jobless Claims totaled 366k, well below expectations of 390k, down from 385k last week (revised up by 4) and the lowest since May ’08. The 4 week avg fell to 388k from 394k. Continuing Claims rose by 4k but were below estimates. Extended Benefits did rise by a sharp 332k but that is delayed by two weeks. Bottom line, this level of claims is a definite positive and the Labor Dept said there were no distortions to account for the fall. There is of course a bridge between a slowdown in the pace of firings and a sustainable, large pick up in hirings (especially in light of the global economic concerns) but this slowing in the pace of claims filings is good to see.

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