The Market Today
Initial Jobless Claims Disappoint as Pace of Progress Slows
by Craig Dismuke, Dudley Carter
CORONAVIRUS UPDATE (VS Coronavirus Chartbook – PDF)
Monitoring the Virus Headlines: U.S. cases rose 0.2%, well below the 0.6% average from the past week. California reported its smallest increase since May and New York City finally announced indoor dining could resume on September 30 at 25% capacity. However, European countries continued to report worrisome increases, with France, Italy, and Spain all showing signs of acceleration. After the disappointing news from AstraZeneca on Tuesday, Dr. Fauci said it doesn’t mean that other companies have ceased their trial process. Sinovac announced encouraging signs from early trials of its vaccine candidate. AstraZeneca said the final diagnosis of the U.K. patient that became ill during the phase 3 trial was still pending. The back and forth on stimulus continued with no signs of imminent success in closing the gap between Democrats and Republicans. Senate Minority Leader Schumer called Senate Majority Leader McConnell’s plan “cynical” and said he expected the GOP to come around once their Senate plan fails to pass Congress.
Initial Jobless Claims Disappoint as Pace of Progress Slows: Initial jobless claims for the week ending September 5 were unchanged from the previous week at 884k, disappointing expectations that they would decline to 850k. Additionally, there were more new PUA claims filed than expected, up from 748k to 839k. Combining the traditional state program and the PUA program, new claims for unemployment rose 91k during the reference week to 1.72mm.
Continuing Claims Also Disappoint: Continuing jobless claims for the week ending August 29 also disappointed expectations, rising from 13.292mm to 13.385mm. Additionally, the number of claimants extending their UI through the PEUC program during the week ending August 22 rose 29k to 1.422mm. For that same reference week, continuing claims through the PUA program (the pandemic-related program which provides access to workers who would not historically qualify for the traditional state UI programs) increased another 1.02mm. For the second week in a row, California reported particular volatility with a 1.55mm increase in these continuing PUA claims alone. For the week ending August 22, 29.5mm people continued to file for unemployment insurance, down 110k from the previous week.
Senate Relief Package: The Senate is set to vote today on their smaller coronavirus relief package. Senate Democrats, who prefer a larger package, have indicated that they have enough votes to prevent the bill from reaching 60 votes.
U.S. Equities Recovered as Tech Rebounded: The recent market volatility continued on Wednesday, although the strong upswing surely left investors a bit more cheerful at the closing bell. After falling sharply over the prior three sessions into a correction from a record high, the Nasdaq roared back 2.7% as tech rebounded. The S&P 500 finished close behind with a 2.0% gain with all 12 sectors recovering from Tuesday’s decline. While July’s JOLTS report proved better than expected (more below), the main driver was likely a search for bargains after the rapid three-day sell-off.
Other Markets Reversed Tuesday’s Moves amid Improved Sentiment: U.S. WTI rose more than 3.6% to halve its Tuesday drop and gold recovered as the Dollar weakened. Treasury yields grinded higher as equities recovered, moving up further after an auction of 10-year notes saw tepid demand. The 2-year yield edged up 0.6 bps to 0.15% as the 5-year yield added 1.4 bps to 0.28%. A record reopening of $35 billion in 10-year notes tailed and awarded an above-average share to primary dealers, signs of sluggish demand. The 10-year yield rose further after the auction, finishing up 1.6 bps to 0.70%.
Market Fluctuations Continue Ahead of ECB and U.S. Jobless Claims: Global markets continued to fluctuate Thursday following yesterday’s rebound on Wall Street as investors awaited the ECB’s latest policy decision and the weekly update on U.S. jobless claims. Stocks rose across most of Asia but retreated in Europe after an opening gain and were lower before the ECB announcement. The Stoxx Europe 600 held its 0.4% decline after the ECB left all of its key rates and asset purchase programs unchanged and made one negligible change to the wording in the statement. The responses in other European markets were also subdued. German yields were modestly higher on the day before and after the decision and the euro was still trading at its highs for the session, up 0.4% against the Dollar. The recent run up in the euro has given some ECB officials indigestion about its effects on the outlook and led to some speculation it could affect upcoming policy actions.
Yields Rise Despite Claims Disappointment as ECB Agrees to Not Overreact to Euro: The uneventful announcement shifted the focus to President Lagarde’s press conference remarks and question and answer session with reporters. As her press conference began, the latest U.S. jobless claims data were released and disappointed expectations. Just before the data were released, Nasdaq futures had inched 0.3% higher, contracts on the S&P 500 were 0.2% lower, and the 10-year Treasury yield had edged up 0.8 bps. Following the claims data, the 10-year Treasury yield actually moved to up 1.5 bp on the day, although the shift was likely more correlated with a jump in yields in Europe. European yields rose and the euro rallied sharply after reports indicated ECB officials agreed to not overreact to the currency’s rise and President Lagarde avoided talking down the currency early in her remarks.
Layoffs Continued to Decline in July as Other Metrics Improve But Remain Off Pre-Virus Levels: Encouragingly, layoffs continued to decline in the July JOLTS report to levels more in line within the pre-virus trends. Total layoffs spiked 11.5mm in March and 7.7mm in April, but have fallen back notably in each month since. The 274k decline in July knocked the level of layoffs to 1.72mm, the lowest since March 2019. The other key metrics from the report also pointed to continued improvement, although absolute levels remained far from the pre-pandemic trends. Total job openings rose 617k to 6.62mm, better than the 6.00mm expected and the highest since February. However, there were 2.5 unemployed persons for every job opening in July, better than the 4.62 in April but well above the 2019 average around 0.8. The pace of hiring slowed for a second month, down 1.18mm to 5.79mm, but quits continued to pick up, rising 344k to a post-pandemic high of 2.95mm.