Initial Jobless Claims
It looks like US dollar's two-month downside correction ended. Is the bull market resuming?
Chinese Stock Bubble Frenzy Returns; US Futures Flat Ahead Of Today's Pre-Holiday Zero Volume Melt UpSubmitted by Tyler Durden on 05/22/2015 06:51 -0400
The highlight of the overnight newsflow may have been the BOJ's preannounced statement that it is keeping its QE unchanged (which comes as no surprise after a few weeks ago the BOJ adimitted it would be unable to keep inflation "stable" at the 2% in the required timeframe), but the highlight of overnight markets was certainly China, where the Banzai Buyers have reemerged, leading to another whopping +2.8% session for the Shanghai Composite which has now risen to a fresh 7 years high.
Initial claims rose very modestly this week but the smoother 4-week average hit fresh cycle lows at 271k - just shy of the lowest level since 1973. Continuing claims also fell to new cycle lows at their lowest since 2000. It appears, as we have noted previously, that peak job-related cost-cutting has been achieved. However, it's not all unicorns and ponies... as Chicago Fed National Activity Indicator printed a disappointing -0.15, the 4th month in a row of contraction.
The big news overnight was neither the Chinese manufacturing PMI miss nor the just as unpleasant (and important) German manufacturing and service PMI misses, but that speculation about a rate hike continues to grow louder despite the abysmal economic data lately, with the latest vote of support of a 25 bps rate increase coming from Goldman which overnight updated its "Fed staff model" and found surprisingly little slack in the economy suggesting that the recent push to blame reality for not complying with economist models (and hence the need for double seasonal adjustments) is gaining steam, and as we first suggested earlier this week, it may just happen that the Fed completely ignores recent data, and pushes on to tighten conditions, if only to rerun the great Trichet experiment of the summer of 2011 when the smallest of rate hikes resulted in a double dip recession.
As the economic calendar slowly picks up following the NFP lull, we are looking at a busy week both globally and in the US, where an army of Fed speakers culminates with a Yellen speech on Friday at 1pm in Rhode Island.
While massive binges in stock buybacks and accounting gimmicks have continued to blur the actual profitability of businesses, the decline in jobless claims suggests that there is little room from further reductions in body counts. However, that does not mean that businesses must begin rapidly increasing employment and wages. Businesses are indeed hiring, but prefer to hire from the "currently employed" labor pool rather than the unemployed masses. The "bad news" is that for those unemployed, full-time employment remains elusive, and wages remain suppressed due to the high competition for available work.
It has gotten to where just the lack of a rout in Bunds or any other government issue is enough to activate the "bullish" outside stop hunting algo, which is probably why ES has jumped overnight in another illiquid, newsless session. Curiously, Bunds shave not sold off even though the EUR has jumped sharply by almost 100 pips overnight to a 3 month high also on no news (with some amusing acrobatics by the USDJPY alongside) traditionally a bearish indicator for the Dax and thus the S&P. Perhaps the algos are just late, or maybe the "weak dollar is good for stocks" thesis has been activated, but in any event this morning's ramp higher in the ES will continue until all upside stops are hunted down by Virtu and crushed mercilessly.
How five investment themes will evolve in the week ahead.
The last two months have been nothing if not a lesson in the disater that is the economic-forecasters of the world. With a 3-sigma beat followed by a 5-sigma miss, hope abounds that April will be the 'goldilocks' print - just cold enough to leave the Fed on hold and just hot enough to 'prove' growth remains. Goldman expects nonfarm payroll job growth of 230k in April, in line with consensus expectations. While labor market indicators were mixed in April, the employment components of service sector surveys were strong and better weather conditions should provide a boost. In addition, they see some upside risk to the forecast from a calendar effect, and expect the unemployment rate to decline by one-tenth to 5.4% and average hourly earnings to rise 0.2%.
While the US is waking up in anticipation of what is once again said to be the "most important nonfarm payrolls number" at least since the last most important such number, because anything 250,000 and above puts the June rate hike right back on the Fed calendar, while a collapse in this lagging indicator will be explained away with harsh rain showers in April, and send stocks soaring due to yet another delay in tightening expectations despite Yellen's outright warning of overvalued stocks, the UK has been up all night following a dramatic election, whose outcome has been largely the opposite of what the experts predicted, with Conservatives set to win an outright majority, resulting in embarrassment for Labor, the Liberal Democrats and the UKIP, both of which have already seen dramatic changes in their leadership, and moments ago both Nick Clegg and Nigel Farage announced they would stand down as party leaders.
Initial jobless claims rose very modestly from last week's 15-year low levels and hovers at a stunning 262k - indicating everything is as awesome as it can possibly be. Which is odd... because as Challenger-Gray notes, April saw the biggest rise in job cuts since 2011 (and the worst YoY increase for April in at least a decade). Job cuts were concentrated in the energy sector on an unprecedented scale.
BOND SELLOFF DEEPENS; GERMAN 10-YR YIELD JUMPS 17 BPS TO 0.76%
SPANISH 10-YEAR BOND YIELD CLIMBS TO 2%; HIGHEST SINCE NOV. 24
ITALIAN 10-YEAR BOND YIELD CLIMBS ABOVE 2%; 1ST TIME THIS YEAR
10Y TREASURY YIELD CLIMBS 6BPS TO 2.31%, HIGHEST SINCE DEC. 8
U.K. 10-YR BOND YIELD CLIMBS 8 BPS TO 2.06%; MOST SINCE NOV. 24
JAPAN 10Y YIELD UP 7.5 BPS, SET FOR BIGGEST RISE SINCE MAY 2013
Quickly looking at the potential market moving events this week, US payrolls on Friday will be the clear focus. In terms of expectations, our US colleagues are expecting a +225k print which matches the current Bloomberg consensus, while they expect the unemployment rate to drop one-tenth to 5.4%. Elsewhere, Thursday’s UK Election will be closely followed while Greece will once again be front and center.
Futures Levitate Following Worst Chinese Mfg PMI In One Year, Brent At 2015 Highs; Bund Slide ContinuesSubmitted by Tyler Durden on 05/04/2015 06:45 -0400
The best news for stocks is twofold: volumes continue to be lethargic with both the UK (May Day bank holiday) and Japan closed until Thursday (Golden Week), while the bulk of the S&P500 has now exited the stock buyback quiet period. As such, ignore record equity outflows - all the matters is that corporate CFOs, flush with brand news bond issuance cash, will tell their favorite Wall Street trading desk to buy stocks at just the right inflection point sending the market surging just as shorts once again test the downtrend and the 50 DMA.