Initial Jobless Claims
While US floor markets are closed for the Thanksgiving holiday (equity, rates and energy futures are open until 1pm Eastern), Europe and Asia (as well as US equity futures) were busy rebounding overnight on strength in the commodity complex following yesterday's news that China's metals producers have asked for a wholesale government bailout or the "QEmmodity" as we have dubbed it, for the first time since 2009, which together with news that China would soon start arresting "malicious metal sellers" has provided a push for commodity prices across the board.
Following yesterday's dramatic geopolitical shock, U.S. equity index futures rise as Russia has not escalated the confrontation with Turkey as some had feared, while Asian shares fall, reversing earlier gains. European stocks are rallying and the euro is falling on the back of a Reuters report that the ECB is mulling new measures to prop up lending, although it’s not clear at this point what the real impact from these measures would be.
It may be a holiday shortened week in the US with Thanksgiving and Black Friday sales on deck (some of which may be starting as soon as Wednesday) but there is a lot of macro data to digest in the next few days.
Futures are modestly higher in early trading having tracked the USDJPY once again almost tick for tick, with the carry trade of choice rising to 123 shortly after Mario Draghi's latest speech pushed the dollar strong initially only to see most gains promptly evaporate against both the Yen and the Euro. European shares are likewise little changed, after gaining earlier, while Asian stocks rise; oil also advanced in early trading only to drop to its lowest overnight level moments ago, a few dimes over $40, with aluminum and copper both posting modest increases.
While it is still unclear just why the FOMC Minutes which are said to have made a December liftoff "more likely" unleashed a dramatic market rally, one which sent both stocks and TSYs higher, the sentiment continued overnight, with both Asian stocks surging on the US momentum, as well as Europe, where the DAX gapped solidly above the 200 DMA as most European shares advanced, led by resources, travel stocks. U.S. futures continue their ramp higher, and at last check were another 8 points, or 0.4%, in the green. But if the Fed Minutes were enough to unleash the latest leg in this rally, than the ECB's own minutes due also today, should send futures back over 2100 without much difficult, regardless of their actual content.
The biggest event overnight came from Europe, where Draghi managed to once again jawbone the Euro lower by ober 50 pips when he told European lawmakers in a prepared testimony that downside economic risks are "clearly visible," repeating his October press conference statement, adding that the ECB will reexamine degree of accommodation in December as "inflation dynamics have somewhat weakened." And the statement that crushed the Euro: "If we were to conclude that our medium-term price stability objective is at risk, we would act by using all the instruments available within our mandate to ensure that an appropriate degree of monetary accommodation is maintained." I.e., another "whatever it takes" moment.
As DB so well-puts it, "Welcome to random number generator day also known as US payrolls." Consensus expects 185k jobs to have been added in October but it’s fair to say that the whisper number has edged up this week with slightly firmer US data. It is also fair to say that even if one knew the number beforehand, it would be impossible to know how the market will react.
Just when you thought (for the 10th time this year) that the worst was over in the US energy space, Challenger Grey reports a massive spike in Energy sector layoffs - to six-month highs. For context, energy sector layoffs are 9 times higher in 2015 than 2014 and Texas - with 103,422 layoffs - is the worst state for job cuts (despite Dallas Fed Fisher's previous insistence that the state is 'diversified'). Despite the ongoing side in initial jobless claims, employers have announced 543,935 job cuts in 2015 so far, 31% higher than 2014.
For those eager to cut to the chase and curious if overnight we have had another standard USDJPY ramp levitating US equity futures on low volume, the answer is yes. And since the USDJPY carry was patient enough, it managed to trigger the 2100 ES stops and as of this moment the futures were comfortably on the politically-correct side of 2100.
Even though Chevron said in July that its cost-cutting initiatives would be "completed by mid-November of 2015" it decided to surprise everyone moments ago when on its earnings call it announced it would not only slash its capex by another 25%, but will shortly distribute another 7,000 pink slips. The reason: another terrible quarter in which the $2 billion in earnings were a 73% plunge from a year earlier.
Back in September we explained why, contrary to both conventional wisdom and the BOJ's endless protests to the contrary, neither the BOJ nor the ECB have any interest in boosting QE at this - or any other point - simply because with every incremental bond they buy, the time when the two central banks run out of monetizable debt comes closer. Since then the ECB has jawboned that it may boost QE (but it has not done so), and overnight as reported previously, the BOJ likewise did not expand QE despite many, including Goldman Sachs, expecting it would do just that.
The raw initial claims data rose 1k from 259 to 260k (beating expectations of 265k). But the less-noisy 4-week average of initial jobless claims has slid further this week - to 263.25, its lowest since Dec 1973 - as the divergence between "useless at this point in the business cycle" claims and 'real' job cuts has never been wider.
Based on the overnight market prints which are an oddly reddish shade of green, it took algos about 12 hours to realize that the reason they soared for most of October, namely hopes of an easier Fed which were launched with the terrible September jobs report and continued with increasingly worse US economic report in the past month, can not be the same reason they also soared yesterday after the announcement of a more hawkish than expected Fed statement which envisioned a stronger US economy and a removal of foreign considerations, which even more curiously took place on even worse data than the Fed's far more dovish September statement.
Last week it was all about central banks, when both the ECB and the PBOC unleashed a massive market rally. This week it will be about even more central banks, this time the Fed, which won't hike, and the BOJ, which may but most likely won't as the Fed and the ECB already did its work for it, sending the Yen tumbling with their actions and/or jawboning.
Missing expectations for the 3rd month in a row, US Lesading Economic Indicators (LEI) dropped 0.2% MoM. There has not been a bigger monthly drop since March 2013. Ironmically, initial jobless claims (which we have recently explained is now useless) was the largest positive contributor (after the yield curve steepness) but stock prices, average workweek, and building permits weighed heaviest.