Prospects Daily: European stocks and euro rally on Greek deal news, while first-time jobless claims in U.S. fall last week

Important developments today:

1.  European stocks and euro advance as Greek reaches an austerity measure deal

2. US labor market continues to strengthen

European stocks and euro advance as Greek reaches an austerity measure deal. European stocks rallied, advancing for the first time in four days, and the euro gained on Thursday as Greek political leaders reached a long-stalled deal on austerity measures needed to secure a second international bailout. The benchmark Stoxx Europe 600 Index advanced 0.5% in afternoon trading, extending earlier gains following news of a Greek deal. The index has gained 23% from last year’s low and 8.1% thus far this year amid speculation that Greece will clinch a deal on reforms and budget measures needed to obtain further international aid. The 17-nation currency appreciated 0.2% to $1.3285, while the euro gained 0.5% to 102.62 yen, strengthening for a third day. Meanwhile, the yield spreads between Italian and Spanish government bonds and the safe-haven German Bunds declined.

Source: Department of Labor

US labor market continues to strengthen. In continued signs of improvement to the US labor market and economy, the number of people receiving unemployment benefits for the first time fell by 15,000 to a seasonally adjusted 358,000 for the week ending February 4th. The closely watched four-week moving average, which gives better idea of trends by removing weekly volatilities, fell by 11,000 to 366,250 - the twelfth successive week that it has remained below the critical 400,000 mark, seen by many analyst as the mark where, if sustained, will continue to make a dent to unemployment. In January the US unemployment rate fell to a near 3-year low of 8.3%. Further in January, the Federal Reserve upgraded its unemployment forecasts to between 8.2 and 8.5% by the end of this year (previous forecasts was 8.5 to 8.7%). Notwithstanding the recent improvements in the US labor market, the unemployment rate remains well above the long run average range of between 5.2 to 6.0%. And more than 40 percent of unemployed persons have been jobless for more than six months, roughly double that of its pre-crisis decade average.

Among Emerging Markets:

In East Asia and the Pacific, China’s consumer price index (CPI) inflation rate accelerated to 4.5% year-on-year (y/y) in January from 4.1% in December, as the earlier occurrence of the Chinese New Year boosted retail sales and spending, especially on food items, during the weeklong holidays. Non-food CPI inflation however slowed modestly to 1.8% from 1.9% in December while producer prices remained flat from the previous month, continuing the broader disinflationary trend.

In Sub-Saharan Africa, South Africa’s unemployed rate surprised on the upside in the last quarter of 2011 declining to 23.9% from 25% in the third quarter according to the Quarterly Labor Force Survey. This was driven mainly by expansion in the services sector as increased government hiring provided counter-cyclical support to the labor market while positive manufacturing sector employment growth appeared to lag behind the economic slowdown.