Initial Jobless Claims
Following last week's lull in global macro, it’s a busy start to the week in which we get the latest deluge of global flash PMIs, while the US economic calendar is loaded with New Home Sales data, Trade Balance, Initial Claims, UMichigan sentiment and the revised US Q1 GDP print on Friday. But perhaps the most expected event will be Yellen's speech on Friday at Harvard's Radcliffe, where the Fed chairman is expected to reveal some more hints on the upcoming rate hike.
Following the last two weeks' dramatic surge in initial jobless claims it was expected that a pull back would occur and it did but the last week's 278k print is still worse than expected - the third weekly miss in a row (the first time since January). The downtrend remains 'broken' as the 4-week-average prints at 3-month highs, catching up to weakness in layoffs, earnings, macro data, ISM/PMI surveys, and retail stocks.
After yesterday's algo-driven mad dash to close the S&P green both for the day and for the year following Fed minutes that came in shocking hawkish, the selling has continued overnight, led by the commodity complex as rate hike fears have pushed oil back down some 2% from yesterday's 7 month highs, which in turn has dragged global stocks lower to a six-week low, while pushing bond yields higher across developed nations as the market suddenly reprices the probability of a June/July rate hike.
After last week's key event, the retail sales number, which the market discounted as being too unrealistic (and overly seasonally adjusted) after printing at a 13 month high and attempting to refute the reality observed by countless retailers, this week has a quiet start today with no data of note due out of Europe and just Empire manufacturing (which moments ago missed badly) and the NAHB housing market index of note in the US session this morning.
Global stocks have started Friday the 13th on the wrong foot, with not only Hong Kong GDP unexpectedly tumbling by 0.4%, the worst print in years while retail sales fell for a thirteenth straight month in March, the longest stretch since 1999 as the Chinese hard landing spreads to the wealthy enclave, but also following a predicted collapse in Chinese new loan creation, which will reverberate not only in China but around the globe in the coming weeks. The latest overnight drop in the Yuan hinted that should the recent USD strength continue, China will have no choice but to repeat its devaluation from last summer and winter.
The last great hope indicator of the bullish narrative appears to have broken as today's initial jobless claims soars 20k to 294k - the highest since Feb 2015. Seemingly confirming the dismal payroll print, one can only wonder how long before this catches 'down' to the weakness in PMI/ISM survey employment data and the hard macro data. The last 3 weeks have seen initial claims soar by the most since 2005...
If yesterday's selloff had a specific catalyst, namely some of the worst consumer retail earnings seen in years, it merely undid the Tuesday rally which levitated global risk with no fundamental driver, aside for a 200 pip spike in the USDJPY. Some central bankers may even say it was a "magical" levitation. Fast forward to the overnight session when following a muted Asian session, it was once again up to the "magical" USDJPY to send stocks well into the green without any actual catalyst whatsoever, but what merely appears to have been another "magical" intervention session by the BOJ.
In the traditional post payrolls data lull, we’re kicking off what’s set to be a much quieter week for data this week with nothing of note due to be released in the US on Monday, however the week picks up with notable economic dataon NFIB small business cofidence, Import prices, PPI and culminates with Friday's retail sales report, UMichigan sentiment and business inventories.
In what may be one of the least relevant payroll reports in a long time as the Fed already knows the labor market is doing better quantiatively (qualitatively it has been all about low-paying jobs gaining at the expense of higher paying manufacturing and info-tech positions) and as has further demonstrated it is no longer jobs data dependent, here is what Wall Street consensus expects: total payrolls +200,000, down from 215K in March; a 4.9% unemployment rate; average hourly earnings rising 0.3% (last 0.3%) M/M and 2.4% Y/Y (last 2.3%); on labor force participation of 63%.
Ahead of the most important macro economic event of the week, US nonfarm payrolls (Exp. +200,000, down from 215,000 despite a very poor ADP report two days ago), the markets have that sinking feeling as futures seem unable to shake off what has been a steady grind lower in the past week, while the Nasdaq has been down for nine of the past ten sessions, after yet another session of jawboning by central bankers who this time flipped to the hawkish side, hinting that the market is not prepared for a June rate hike. Additionally, sentiment is showing little sign of improvement due to concerns over global-growth prospects as markets seek to close the worst week since the turmoil at the start of the year.
The paradoxical divergence between the government's data on initial jobless claims, which in just over half an hour is expected to print at or close to another multi-decade low, and the actual number of layoff announcements by employers as tracked by Challenger Gray, and which continues to soar is puzzling to say the least. In the first four months of 2016, employers have announced a total of 250,061 planned job cuts, up 24% from the 201,796 job cuts tracked during the same period a year ago. This represents the highest January-April total since 2009, when the opening four months of the year saw 695,100 job cuts in the aftermath of the biggest financial crisis in modern history.
While markets remain relatively subdued ahead of tomorrow's nonfarm payrolls report, after several days of losses in US stocks which pushed the S&P500 to three week lows, overnight markets ignored the latest weak data out of China where the Caixin Services PMI was the latest indicator to disappoint (dropping from 52.2 to 51.8), and instead focused on crude, which rebounded from yesterday's post inventory-build lows and briefly printed above $45/bbl over uncertainty related to the impact of Canada wildfires on production and how long will last. The bounce in WTI has meant Brent briefly traded at parity with West Texas for the first time in 6 weeks.
Following yesterday's Yen surge in the aftermath of the disappointing BOJ announcement, the pain for USDJPY long continued, with the key carry pair tumbling as low as 106, the lowest level since October 2014 before stabilizing around 107, and is now headed for its biggest weekly gain since 2008, which in turn has pushed the US dollar to to its lowest close in almost a year as signs of slowing growth in the U.S. dimmed prospects for a Federal Reserve interest-rate increase. As a result, global stocks fell and commodities extended gains in their best month since 2010.
Initial jobless claims continue to hover at 43 year lows, suggesting that everything is awesome in America - just ask President Obama. So why is US GDP not growing at 3.0%-plus as the 'models' would suggest? Simple - because job 'quality' matters and the chart below should slap that into the face of fiction-peddlers across the nation...