Initial Jobless Claims
So much for the idea of 'slack' in the economy, initial jobless claims just plunged 19k week-over-week to 284k (vs 307k expected) - the lowest since Jan 2006 (which was the lowest print since May 2000). This is the biggest beat of expectations in over 2 years. Continuing claims fell modestly. Let's not go popping the champagne corks of full recovery quite yet as non-seaonally-adjusted claims collapsed by their most in 6 months as the government saw fit to warn data-consumers that "claims are often very volatile this time of year," as auto shutdowns can cause claims to fluctuate. In other words, ignore this noise.
Ever since going public, it appears that Markit's giddyness about life has spilled over into its manufacturing surveys: after a surge in recent Markit mfg exuberance in recent months in the US, it was first China's turn overnight to hit an 18 month high, slamming expectations and fixing the bitter taste in the mouth left by another month of atrocious Japan trade data (where even Goldman has thrown in the towel on Abenomics now) following which the euphoria spilled over to Europe just as the triple-dip recession warnings had started to grow ever louder and most economists have been making a strong case for ECB QE. Instead, German July mfg PMI printed at 52.9, above the 52.0 in June and above the 51.9 expected while the Composite blasted higher to 55.9, from 54.0, and above the 53.8 expected thanks to the strongest Service PMI in 37 months! End result: a blended Eurozone manufacturing PMI rising from 51.8 to 51.9, despite expectations of a modest decline while the Composite rose from 52.8 to 54.0, on expectations of an unchanged print. Curiously the soft survey data took place as Retail Sales declined both in Italy (-0.7%, Exp. +0.2%), and the UK (-0.1%, Exp. 0.3%), which incidentally was blamed on "hot weather." Perhaps Markit, now that it has IPOed successfully, can step off the gas or at least lobby to have surveys become part of GDP.
Yet again the fate of the US economy is left to seasonal adjustments... Non-seasonally-adjusted initial jobless claims surged over 47,000 this week to its worst in 6-months. But by the magic of PhD adjustment, this translated into 3,000 seasonally-adjusted drop from last week, beating expectations and printing near 'recovery' cycle lows. We can only imagine the adjustments needed to cope with Microsoft's layoffs. 2014 has seen the smallest percentage drop in initial claims since the crisis began.
Now that the World Cup is over, and following last week's global macro reporting slumber (aside for the Portuguese risk flaring episode of course), things pick up quite a bit in the coming week. Here are the key events.
But... but... the VIX said everything is ok, and European rates were the lowest they have been in centuries... How can something possibly go wrong?
It just did.
Europe is collapsing, contagion is spreading, US firms are admitting "it's not the weather"... but initial jobless claims news is great so BFTD? After 5 weeks of misses, initial claims beat and fell to 304k - just shy of the record low for the cycle. Continuing claims rose though, missing expectations for the 2nd week in a row - this is the first 2-weeks-in-a-row rise since Feb.
There was some good news in the JOLTS report released earlier today, mostly in the form of the Job Openings category which surged from 4,464K in April to 4.635K in May, well above the 4350K expected and the highest print since 2007 (granted the unadjusted data showed something completely different but that's a different story). And since this is one of Yellen's favorite labor market indicators, it means that the Fed is that much closer to finally turning the liquidity tap off (at least until the market crashes and the market is promptly forced to rush back in and bail everyone out all over again). Alas, there was also bad news. As the following chart shows, the trend that we have pounded the table on for the past year, namely the lack of actual hiring continues to persist. In fact, while job openings may have soared by nearly 300K in May, the actual number of Hired declined by 52K to 4,718K.
Risk assets have started the week off on a slightly softer footing but overall volumes are fairly low given the quiet Friday session last week and with the lack of any major weekend headlines. Equity bourses are down between 25-50bp on the day paced by the Nikkei (-0.4%). In China, a number of railway construction stocks are up 3-4% after reports that China Railway Corp will buy around 300 sets of high speed trains and may potentially launch 14 news railway construction projects soon as part of national investment plans.
Initial Jobless Claims Misses For 5th Week As Trade Deficit Improves Modestly (Thanks To Saudi Arabia)Submitted by Tyler Durden on 07/03/2014 08:40 -0400
Q2 GDP hope remains as a significant surge in exports of automotive vehicles, parts, and engines stalled the collapsing trade balance for a very modest beat (still a $44.4 billion deficit). This is the 2nd biggest trade deficit since November 2012 as imports dropped $0.7bn and exports rose $2.0 billion. Saudi Arabia, interestingly, was largely responsible for the improvement in the trade balance as the deficit dropped from $4bn to $2.3bn. Hope springs eternal but the deficit is still considerably more of a drag on Q2 GDP than it was on Q1 GDP. Initial jobless claims continue to go nowhere but missed for the 5th week in a row).
Once again, US equity futures are roughly unchanged (while Treasurys have seen a surprising overnight bid coming out of Asia) ahead of an avalanche of macroeconomic news both in Europe, where the ECB will deliver its monthly message, and in the US where we will shortly get jobless claims, ISM non-manufacturing, trade balance, nonfarm payrolls, unemployment, average earnings, Markit U.S. composite PMI, Markit U.S. services PMI due later. Of course the most important number is the June NFP payrolls and to a lesser extent the unemployment rate, which consensus expects at 215K and 6.3%, although the whisper number is about 30K higher following yesterday's massive ADP outlier. Nonetheless, keep in mind that a) ADP is a horrible predictor of NFP, with a 40K average absolute error rate and b) in December the initial ADP print was 151K higher than the nonfarms. Those watching inflation will be far more focused on hourly earnings, expected to rise 0.2% M/M and 1.9% Y/Y. Should wages continue to stagnate and decline on a real basis, expect to hear the "stagflation" word much more often in the coming weeks.
Goldman's June Final GLI came in at 3.1% year-over-year, down from the revised 3.3% year-over-year reading in May. Momentum came in at 0.15% month-over-month - flat from last month’s revised reading. Ever optimistic, Goldman views this results, as continuing to locate the global industrial cycle close to the ‘Expansion’ phase but has yet to signal positive acceleration... oh so close... The 3 big drivers of the deterioration were Japan's Inventory/Sales ratio worsened, US Initial Jobless Claims were marginally higher, and as we have been vociferously noting, The Baltic Dry Index continued to come in softer as well.
On a revised basis, initial claims dropped 2k this week but marginally missed expectations at 312k. This is the 4th week in a row of marginal misses - none of which were large enough to get to excited about but it appears the limit has been reached in this cycle. Continuing claims rose for only the 2nd time in 10 weeks.
Initial claims very slightly missed expectations (312 vs 311.9 exp) for the 3rd week in a row but the signal is no worse and no better as it sits near cycle lows. Continuing claims continue to drop; at 2.56 million, this is the lowest continuing claims since Nov 2007 - the last 4 months have seen continuing claims drop at the fastest rate in over 4 years. The bottom line is 'this is as good as it gets'...
She came, she spoke, and she sent stocks to a new all time high. That is perhaps the simplest summary of what Janet Yellen did yesterday when, as a result of her droning monotone, she managed to put the VIX literally to sleep, which closed at the lowest since 2007 and the resulting surge in the S&P was a fresh record high, because despite the "concerns" Fed member have about record high complacency, all they are doing is adding to it. And now that apparently the Fed has a market "valuation" department, and Yellen can issue fairness opinions on whether the S&P is overvalued, the only question is whether today, as a follow through to yesterday's "buy everything, preferably on leverage, sincerely - the Fed" ramp, the VIX will drop to single digits today.
With another day of little otherwise completely irrelevant macro news (because following last night's abysmal Australian jobs data one would think the AUD would be weaker; one would be wrong), market participants - all 3 of them - and algos (which have finally uncovered where Iraq is on google maps) are finally turning their attention to the latest conflict in Iraq (because they obviously no longer care about the martial law in Thailand or the civil war in Ukraine), where the Al Qaeda spin off ISIS overnight seized at least 310K B/D in refinery capacity in northern Iraq according to the Police, and what is more concerning, is now less than a 100 kilometers away from Baghdad. Will ISIS dare to venture further south? Keep an eye on crude for the answer.