Anyone anticipating some earth-shattering release from the DOL in its weekly initial claims report as a guide what to expect tomorrow was disappointed following the release of a 346K print today, which was about as close to the 345K expected without the DOL losing all credibility. This followed last week's naturally upward revised 354K to 357K print, although the problem is that it appears this was it for the 'downward trend' in initial claims which goes back to the thesis that 7.5% unemployment is the new 4.4% unemployment. Continuing claims came better than expected at 2952K on 2974K expected. Also, damn it doesn't feel good to be a government worker - "there were 17,862 former Federal civilian employees claiming UI benefits for the week ending May 18, an increase of 551 from the previous week." Blame the sequester. There was no good news for veterans either: "Newly discharged veterans claiming benefits totaled 35,944, an increase of 614 from the prior week." Bottom line: a nebulous report which provides zero additional insight into what to expect in tomorrow's NFP and thus zero color into what the Fed may do with... "THE TAPER" dun dun dun.
One look at the 5%+ plunge in the Nikkei overnight and one would be allowed to wonder if this was it for Abenomics: with a 15% drop from recent highs, and the TOPIX Real Estate index down by more than 20%+ since mid-April, entering a bear market, what's worse is that even the "wealth effect" Mrs Watanabe fanatics would be excused from having much hope going forward. The problem, however, is that in a world in which only the USDJPY matters as a risk signal, and only the stock market remains as a last bastion of "hope", the overnight weakness pushing the dollar yen to just 50 pips above 100 threatened to crush the manipulated rally and force everyone to doubt the sustainability of central planning. So, sure enough, literally seconds we got the much needed stick save without which everything could have come tumbling down, namely based on an unsourced article out of Reuters that Japan's Public Pension Fund is considering a change to its portfolio strategy that could allow domestic equity share of investments to rise in rallying market. The immediate result was an instantaneous surge in the USDJPY which in turn dragged global risk higher across the board, simply due to what algos deemed as yet another procyclical last minute rescue. More importantly this was nothing but a squeeze catalyst coming at just the right time before market open to prevent a rout in global equities. Ironically, that we are back to the Reuters "sticksave" unsourced article, indicates just how weak the reality behind the scenes must be.
"The last 36 hours have perhaps been evidence as to what might happen if stimulus is withdrawn before the global recovery has been cemented and what might happen if Japan makes mistakes along the way to their attempted new dawn. With the Chinese data still ambiguous, Europe still in recession, Japan in the very early stages of a growth experiment and with the US recovery still historically very weak one has to say that liquidity has been the main market fuel in recent months. So central banks have to tread carefully and the Fed tapering talk and the BoJ's seemingly benign neglect policy towards JGBs has had the market fretting." - Deutsche Bank
One of the consequences of yesterday's endless Fed PR campaign was making it very clear that any good news going forward will be bad news for the market as it brings the T-word that shall not be named (wink wink Hilsenrath) that much closer. Which is why today's initial claims print, which just came in line with expectations at 340K, on consensus was looking for 345K, will hardly be a good thing for the market which now needs horrible economic data to assume that the taper will be delayed indefinitely. The last month's data was as always revised higher from 360K to 363K just so the media can claim an improvement of 23K for the week. Sure enough, futures not only did not ramp on the news, but are continuing to trade at the weak levels seen before the print. Continuing claims also came in better than the expected 3 million at 2.912 million, the first sub-3MM print since 2008. Hardly the bad enough news the market was looking for. And while the report in general was a big snooze, of note was the surge in California initial claims last week when the headline number soared, jumping to 15,060 due to "layoffs in the service industry." Will the weakness persist?
There was no surprise in today's Initial Claims data, which continued the downward trend seen in recent months (despite the data seen in the most recent JOLTS survey which was hardly as optimistic on recent labor trends as the NFP number of the weekly claims data), with the headline number dropping to 323K, down from an upward revised 327K, and below the expected 335K print. On the surface, and at least to algos, this continues to be good news. The question remains whether the improving claim trend is due to fewer layoffs, or a lower marginal detachment workforce due to the labor force participation rate which was at 33 year lows for the second month in a low. At this point any additional substantial drops below the 300,000 range will likely mean a major distortion in the labor force as this is where claims numbers were at a time when the economy was actually strong, as opposed to the current liquified stock-market manipulated sham.
Any hopes that the S&P would hit a new all time high on horrible initial claims data may have been dashed following a report that initial claims for unemployment insurance dropped from an upward revised 355K (was 352K) to 339K, better than the expected 350K, and down to a nearly fresh five year low. It was unclear immediately following the report which states were estimated if any: as a reminder last week the DOL announced that 2 states had their data estimated. Continuing claims dropped from an upward revised 3093K to 3000K, the lowest in 5 years. Of course, with millions of people now prematurely out of the labor participation rate, what if any data the initial claims report provides these days, is very much unclear.
In perhaps the most boring initial claims release in a long time, the DOL revealed that in the week ending April 13, there were 352,000 new unemployment insurance claims, an increase of 4,000 from the prior week (naturally revised higher from 346K to 348K), and a slight miss of expectations of 350K. So far in 2013, there have been 8 misses and 7 beats of the expected claims number. The DOL also added that two states' claims were estimated in the past week: of course, if these were California and Illinois, one would imagine reality to be quite different than what is reported but who really cares about reality any more.
Following last month's surge in initial claims (subsequently revised even higher from 385K to 388K), the monthly edition in the series tumbled by 44K to 344K, below estimates of 360K, and which will be revised to 348K or so next month. The reason for the volatility given by the DOL is the "unwind of seasonal swings" which would make sense as the unadjusted number actually rose by 37,025, or about the amount the adjusted number dropped by. Continuing claims rose more than expected to 3,079K, from 3067K, however the number was revised so it can be palatable for MSM consumption, and as a result of the upward revision of February from 3063K to 3091K, it "declined." It is unclear how many if any states were estimate by the DOL in this month's edition of pick the noisy number. Most importantly, unlike the entire past two weeks, a good economic print is good for the market, not just a bad economic print.
And the economic (downside) hits keep on coming: PMI, ISM, Non-Mfg ISM, ADP and now Initial claims - five out of five misses as the US economy slowly but surely joins the rest of the world in resuming its downward trajectory. Moments ago initial claims printed a whopping 385K, far above expectations of 353K, and far above the upwardly revised 357K (was 353K before). This was the biggest miss to expectations since November. Also, excluding the Sandy abberations, this was the biggest two week surge in claims since April 2011. Continuing claims also missed, printing at 3063K, above expectations of 3050K. Sure enough, the excuses begin: sequester, Easter (two states estimated which means actual number is likely even worse), weather (unclear if warm or hot), Cyprus, and generally, stuff... Just not the economy. Never the actual economy. Because it is unpossible that with $85 billion inject per month into the market economy, that things would be just getting worse and worse.
Summary of key US events in the week ahead.
With record numbers of people out of the labor force, and hundreds of thousands falling off each month, it is no surprise that the grind lower in initial claims continues - after all there is only so long one can request insurance benefits, now that extended claims are limited. In the week ended March 16, initial claims rose from an upward revised 334K (was 332K and merely the latest in an infinite series of prior upward revisions) to 336K, just below the expected 340K, even as NSA claims declined more to 299K. It would not be surprising that with the current of labor force exodus we get a 100K-handle unadjusted print soon as the pool of eligible workers who collect benefits shrinks to record levels. A tad defensive BLS was quick to note that unlike prior weeks, no states number were estimated. Continuing claims rose also, from an upward revised 3048K to 3053K, above the expected 3050K. Overall a snoozer of a report. The biggest surprise, however, was in the emergency extended benefits, which has continued it abnormally erratic weekly pattern, with this time 136K people falling off, following last week's weekly surge. A tiny 1.8 million Americans are now on extended claims, nearly 1.1 million below the 2.9 million last year. Curious who the people applying for SS disability are? Now you know.
The grind lower in initial jobless claims continues, which from an upwardly revised 342k (was 340K) last week, declined to 332K in the most recent week ended March 9, on expectations of an increase to 350K. This was the third consecutive beat in a row and the lowest total print since January, which in turn takes it all the way back to January 2008. Continuing claims were also better than expected, dropping from an upwardly-revised 3113K, to 3024K, on expectations of a 3090K print. According to the BLS, unlike the last time we had an abnormally low print, no states were estimated this time around.
The quiet overnight session was started by comments from Buba's Weidmann, whose statement, among others, that the ECB will not cut interest rates just to weaken the EUR together with the assertion that the EUR is not seriously overvalued, sent the EURUSD briefly higher in pre-European open trading. Of secondary importance was his "hope" that the ECB will not have to buy bonds (it will once the market gets tired of Draghi open-ended verbal intervention), something he himself admitted when he said the ECB "may be forced to show its hand on OMT." The stronger EUR did not last long, and in a peculiar reversal from prior weeks when the European open led to a spike in the cross, saw the EURUSD dip to three week lows, touching on 1.3310, before modestly rebounding. This validity of the drop was confirmed two hours later when in the first key economic datapoint, it was revealed the Euroearea exports fell 1.8% in December, the most in five months. As SocGen said "the monthly trade data rounded off what has undoubtedly been a pretty dismal quarter for the euro area. Overall euro area exports fell by 1.8% m/m in December although this was offset by a even bigger 3% decline in imports - which itself reflects the weakness of domestic demand in some euro area countries. Maybe of more interest is the latest data on the destination of euro exports. These continue to show a pronounced weakness in global demand (albeit for November). This indicates that weakness in Q4 is not solely a domestic affair but also reflects a wider slowdown in the global economy."
And so the BLS and DOL are back to "seasonal adjustments." Because in a week in which the Sandy effect was supposed to fade, at least on a seasonally adjusted basis, nothing could spoil the party. And sure enough, the headline number dropped from an upward revised (how else) 395,000 to 370,000, well below the expected 380,000. The real story, however, is how the DOL is doing all it can to smooth the noise, because in the week ended December 1, Not Seasonally Adjusted Initial Claims soared by 139,678 - the highest since January, to a whopping 498,619. Compare this to the SA number of 370,000, and one can see why in the aftermath of Sandy, it is quite clear that between hurricane distortions and seasonal adjustments, the headline number is completely meaningless. Confirming this was the surge in Continuing Claims, which ripped from 2,835,671 to 3,301,200, an increase in continuing claims of 465,529, or nearly half a million, in one week! But at least the pre-election boost of those collecting extended claims is over, with those on EUCs down by 110K in one week, thereby ending the extended Uncle Sam handout for over a hundred thousand Americans, who will now be forced to seek solace in disability benefits.
Yesterday's home sales data, which came far better than expected, apparently had nothing to do with Hurricane Sandy (had it been a disappointment the narrative would have been far different). What Hurricane Sandy did have an impact on for the second week in a row, is today's Initial Unemployment Claims, supposedly, which for the second week in a row printed well above 400K, and just as expected, at 410K, "down" from last week's upward (naturally) revised 451K (previously 439K). NSA claims declined from 478.5K to 397.7K, while Continuing Claims were just below expectations at 3,337K on a consensus print of 3,345K, and down from an upward revised 3,367K. Notable is that the dropping trend in those on extended claims, which recently dropped to a multi year low of around 2 million, had reverse, and 60.8K applied for EUCs.