At 339,000 initial jobless claims, this is the 3rd miss in thelast 4 weeks and back above the 8-month average suggesting that the best in the layoff trajectory of this 'recovery' is over. Continuing claims remains slid modestly and, of course, emergency benefits remain at zero. Of course, as we showed here, it is not layoffs (and thus initial jobless claims) that matters - what is crucial is that there is no hiring...
Initial claims rose very marginally week over week (with the declining trend of early 2013 now over); continung claims rose more - considerably more than expectations - with its biggest 7-week rise since early 2009 to the highest in 6 months; but the major news is the drop in Emergency Unemployment Compensation beneficiaries from 1.37 million to (drum roll please) zero! Congress decision not to extend this beenfit means there are 2 million fewer people on benefits than a year ago. The 1.4 million drop also means the number of people NOT in the labor force is about to rise by the same amount, which as we explained before, means the US unemployment rate is about to drop by up to 0.8%, which means the January unemployment rate could be as low as 5.9%.
Initial claims beat expectations very modestly (326k vs 328k expected) and hover at their average level of the last 6 months. Non-seasonally-adjusted saw initial claims surge to 438k. It would appear the trend of improving claims has ended for now. What is perhaps more worrying is the continuing claims surged by their most in over 5 years - at 3.03 million, this is the highest in 6 months (and the biggest miss in 6 months. It is worth noting that this is before the emergency benefits for 1.3 million Americans disappear (which will likely begin to show up next week or the week after).
The positive momentum in equities slowed in Asian trading with losses seen on the Nikkei (-0.4%), and HSCEI , the SCHOMP unchanged and EM indices such as the Nifty (-
0.1%). In Australia, a disappointing December employment report saw a 23k fall in jobs for the month against consensus expectations of rise of 10k. The 10yr Australian government bond has rallied 5bp and the front end is outperforming as a number of investors expect the RBA to continue its easing bias over 2014. AUDUSD has sold off -1.1% to a three year low of 0.881. The ASX200 closed up 1.2% however, boosted by mining-giant Rio Tinto (+2%) who reported better than anticipated Q4 production. Amid recent fears of a Chinese growth deceleration, Rio Tinto reported record levels of production of iron-ore, coal and bauxite. In FX, USDJPY is finding further support in Asia, adding 0.1% to yesterday’s 0.38% gain to trade not too far from the 105 level. Which is also why the S&P futures are trading modestly lower: without a major breakout in the Yen carry, there can't be a sustained ramp in the US stock market which is driven entirely by the value of the Yen, which in turn is a reflection of the expectations of future BOJ easing.
The Department of Labor states that there is no indication that the winter storm affected this week's numbers (though they are likely to remain volatile through January) as jobless claims dropped from a ubiquitously revised-upwards 345k to 330k this week - the lowest level since the end of November (even as NSA data jumped from 451k to 486k on the week). Continuing claims rose modestly back into the middle of the range of the last 4 months just like initial claims. The emergency claims data is lagged so we will not see the impact of congressional decisions on that until 2 weeks from now but its worth noting that the data we alreayd have shows 104,000 dropping off the rolls. California, Pennsylvania, and Michigan topped the initial claimants list with California worse than this time last year.
Despite the BLS claiming no states estimated their data and the previous week's apparently errant (but significantly not revised lower), the claims data this week saw its biggest week-over-week percentage drop since January 2006 (which ironically almost perfectly bottom-ticked the previous 'recovery' claims improvements). Continuing claims, however, rose for the 3rd week in a row - the largest 3-week rise in since March 2009! Of course, the more critical part of the labor department's report is the end of the Emergency Unemployment Compensation (EUC) program which will pay one more claim this week and then 1,333,332 will begin to lose their benefits. EUC benefits cannot be paid for any week of unemployment after Dec 28th (which, of course, is great news for the unemployment rate).
It has been another session of overnight weakness, in which, to quote Deutsche Bank, "something has changed" as ES algos no longer track every tick of the EURJPY (or other JPY pair variants). Usually in such transition periods where the robots are not sure how to trade risk based on highly leveraged inputs, things go bump in the night, and they did just that with the E-Mini trading just off its overnight lows, despite a notable rise in the EURJPY from yesterday's close. Keep a close eye on the now traditional pre-market ramp in the EURJPY - if unaccompanied by an increase in the E-mini, it may be time to quietly exit stage left.
If yesterday's "great" news in the form of a 200K+ ADP, which sent the market sliding, was offset by the "ugly" news of the Service ISM which sent stocks soaring, today there are only "good cops" - first it was the revised Q3 GDP number print far above most expectations, purely on the back of inventory accumulation which however will now detract materially from Q4 growth, and at the same time, feeding the taper fire, the DOL announced that claims for the week ended November 30, which tumbled to 298,000 a 23K drop from a last week's upward revised 321K, the best print since September 2013, and the biggest beat of expectations of 320K since also September 2013, which was when the DOL started upgrading various computer systems making all data unreliable. And while futures assume the number immediately means the probability of a December taper surges, the DOL quietly added that it is "not unusual for claims to be volatile in holidays."
Adding the claims and PPI reports together: Claims suggest Fed may taper soon if the labor market is indeed improving (with companies hiring part-time workers), while the PPI confirms that at least according to the BLS, inflation is nowhere to be found, suggesting much more QE in stock.
Initial Jobless Claims spike 66k this week, to its 2nd highest print of the year. For 5 weeks in a row we have see initial claims slide lower as the market celebrated multi-year lows and rallied on recovery hopes... and now it's all gone. Continuing claims has also missed expectations for the second week in a row. The Labor department explains this credibility-destroying data as due to the government shutdown and to "glitches" in the California computer system (which were supposedly resolved two weeks ago when the claims number was printing in the mid 200k range) as well as due to 15,000 non-Federal workers filing claims (being fired) due to the government shutdown. Of course, anyone fired in the past week can and likely will say they were fired due to the shutdown. The market shrugged off this data as irrelevant, which it is for the simple reason that initial claims reporting, now flawed for 5 weeks in a row, has become the latest "data" set to succumb to total farcism.
As reported previously, the latest meme surrounding the D.C. impasse is that Obama is suddenly willing to compromise on a short-term, supposedly six-week funding and debt ceiling extension, on the verge of his latest talks with republicans at the White House scheduled for this morning, as previously floated by the GOP. Throw some additional headlines such as "Ryan steps up to shape a deal" (in line with what we predicted yesterday) and "The ice breaks; fiscal talks set", by The Hill, and "GOP quietly backing away from Obamacare" from Politico, and one can see why futures are in breakneck soaring mode this morning, driven as usual by the two main JPY cross (USD and AUD), the first of which is less than 100 pips now away from being Stolpered out. So will a compromise deal finally emerge 7 days ahead of the first X-Date, or will a last minute snag once again derail the (non)-negotiations? We will know quite soon.
While all other government data releases are halted, the DOL has been kind enough to keep its Initial Claims random number generator running, and this week, following several weeks of "computer system update" distortions, reported the fifth consecutive week of expectations beats with a print of 308K, below the 315K expected, but above the upward revised 307K from last week. Alas, the number is once again completely meaningless as the DOL said Federal furloughs will not show up in claims data, which means that all of the up to 800,000 newly filing government workers will remain completely under the radar, and forcing even more people to wonder just what is the utility of any government data, even when the government is generous enough to not be shut down. Equities did not move at all on the news but gold and bonds are rallying.
Despite the last 2 weeks of 'systems upgrades' being responsible for lower-than-expected jobless claims data, the smart analysts and strategists had lower expectations to 325k - the lowest in 6 years - and sure enough claims beats expectations and prints 305k (for the 4th week in a row - 2 of them with broken systems). This is a drop of 5k from last month's entirely made-up data as we note that once California (among the biggest contributors to the claims data) has caught up with its backlog - so theoretically this is a 'real' data point. Continuing claims ticked up by the most in 2 months.
The last 2 weeks have seen the biggest drop in initial jobless claims in 3 months as today's print is within a smidge of six year lows. Continuing claims also fell close to 5.5 year lows. All good healthy "Taper-On" news ahead of the all-important NFP. However, the only fly in the ointment as far as celebrating this 'renaissance' remains productivity gains and the ongoing slump in unit labor costs (which missed expectations of an easy-money earnings-growth generated +0.8% gain and came in at a dismal 0.0%). Simply put, all the hope of wage inflation providing the self-sustaining glue to hold this 'thing' together post-Fed-Taper is fading fast as the liquidity pipeline remains unerringly clogged.
A quiet week to send off August ahead of a deluge of key data next week and as the fateful Septembr 18 FOMC announcement approaches. Still, quite a few macro events to keep track of.