FTSE falls further after surprise rise in US jobless claims

Leading shares are hovering around their lows for the day, following worse than expected US job figures.

Despite an upward revision of US GDP, investors are concentrating on news that the number of new claims for jobless benefits rose by 15,000 last week, defying predictions of a slight fall. On top of that, there is some nervousness ahead of a $27bn auction of long-dated Treasury bonds.

So with Wall Street slipping back at the open, the FTSE 100 is down 54.49 points at 4225.49.

Meanwhile, Citigroup's Michael Saunders is predicting the end of the Bank of England's quantitative easing programme before too long, as inflation starts to pick up once more. He said in a note today:

"The June YouGov survey shows inflation expectations among the general public rising back to match the 2.0% inflation target, after markedly undershooting the inflation target since last November.

"With inflation expectations back to the CPI target, signs that recession is ending – and sticky readings for actual CPI inflation – we expect that the Bank's monetary policy committee will soon end quantitative easing, leaving the £125bn (or £150bn) expansion in bank reserves in place but not buying any more gilts. The [Bank] faces a tactical choice as to whether to stop QE at £125bn or £150bn, and the announcement that QE is ending will probably come at the August MPC meeting (Inflation Report month) rather than July. But, either way, the expansionary phase of QE is probably nearly over."

Back with equities, miners continue to be a drag on the market, as do financials with the exception of Royal Bank of Scotland, up 1.04p to 36.6p after a positive note from Cazenove.

Publisher Pearson slipped 7p to 610p as Deutche Bank issued a sell note and cut its price target from 560p to 500p, partly due to the effect of the weak dollar on the company's US earnings. Deutsche added:

"The core of our sell case on Pearson for some time has been that the woeful state of US state finances will lead to a sustained period of sub-par growth (and in the near term decline) for the Schools business (most seriously for the instructional material business) but also for the testing/software operations.

"For the majority of states the budget gap they face in 2010 is bigger than the gap they faced in 2009. Fixing year one is lot easier than fixing year two. The low-hanging fruit has been picked (and the larder raided). If 2009 was painful for those supplying the states, 2010 is likely to be truly awful. The bull hypothesis that sales in schoolbooks that didn't happen in 2009 are being deferred into 2010 looks implausible to us.

"Governor Schwarzenegger of California has announced a Free Digital Textbook Initiative. We are of the view that the near-term impact will be very limited (California can't afford to buy books anyway; it can't afford the technology investment to switch to digital product; the timeline planned looks too short). However there are three simple, somewhat scary messages: 1) the funding hole is dire; 2) a technology shift is coming eventually and we can't think of many instances where they've been good for media companies; 3) can it ever be good when your biggest customer says they don't want your product?"