The Market Today

Jobless Claims Disappoint for a Second Week as Investors Brace for Daily Flood of Fed Comments


by Craig Dismuke, Dudley Carter

TODAY’S CALENDAR

1Q GDP Unrevised Headline Growth of +6.4%: First quarter GDP growth was unchanged at +6.4% in its final revision.  Beneath the headline, there were some notable expenditure-level revisions.  Personal consumption was largely unchanged but private investment saw meaningful revisions.  Business investment in equipment was revised up $4.7b and investment in structures up $4.4b.  Inventories were also revised up $5.9b.  The stronger investment/inventory figures, however, were offset by a larger decline in the external trade balance.  Imports were revised up $22.9b and exports were revised up just $4.5b, subtracting 0.3% from the final GDP tally.  Going forward, the revisions have mixed implications for future quarters’ growth rates.

Jobless Claims Show Slower Labor Recovery Continuing in Early June: Initial jobless claims were essentially flat last week after rising for the first time in six weeks in the prior week’s report. New state claims of 411k, a disappointment relative to the 380k claims expected, marked a 7k-claim weekly decline. Claims in the PUA program rose by 7k to 104k, resulting in the flat comparison for total initial claims. While the level was disappointing, a state-level analysis shows minor improvement across most of the country; Kentucky accounted for more than all of the PUA increase. More broadly, continuing claims in state programs dropped more than expected in the week of June 12 to a new low for the pandemic. In the most lagged data, reported for the week of June 5, total claims in all programs were essentially unchanged at 14.8 million, with opposite moves in continuing PUA claims (-175k) and PEUC claims (+107k). With the data now entering a months-long period where Republican-governed states will essentially end access to emergency programs, the claims data should begin to show how much of an effect enhanced unemployment is having on labor supply.

May’s Durable Goods Reports Shows Auto Activity Picked Up, Mixed Signals for Business Investment: Durable goods orders and the component tracking businesses’ investment in equipment both disappointed expectations in May. Total durable goods orders rose 2.3%, less than the 2.8% gain expected, although a positive revision to April kept the two-month spending level tracking expectations. Encouragingly, auto production rose 2.1% after an 8.1% tumble. Capital goods orders, the business equipment component, fell 0.1%, disappointing expectations for a 0.6% gain. A positive revision to April only partially offset the current miss. After two months of data, business equipment investment is tracking a 15% annualized quarterly gain. Shipments of business equipment in May were more encouraging and a bit better than expected, up 0.9%, and April’s data was revised up 0.1% to a 1.0% gain.

Fedspeak: Richmond Fed Bank President Barkin, a 2021 voting member from whom we have not yet heard, is scheduled to speak at 8:00 a.m. CT.  Atlanta’s Bostic and Philadelphia’s Harker are both slated to speak at 8:30 a.m.  Harker is not a voting member until 2023 and Bostic has already made varying opinions known.  New York’s Williams will speak at 10:00 a.m. while St. Louis’s Bullard speaks at 12:00 noon.  Adding to the group of speakers from whom we have not yet hears, Dallas Bank President Kaplan (voter in 2023) is scheduled to speak at 12:00 noon also.

 

24 HOURS OF MARKET ACTIVITY

Stocks Stick Around Record Levels as Investors Monitor Economic Data and Fed Comments: The Dow and S&P 500 loitered close to their opening levels throughout Wednesday’s trading session before dipping in the final half hour to register modest declines of 0.2% and 0.1%, respectively. Gains in shares of Tesla lifted the S&P 500’s consumer discretionary sector to a first place finish while financials and energy companies posted more modest gains. The remaining eight sectors posted declines of between 0.1% and 1.0%. Preliminary PMI estimates from Markit showed U.S. demand remains solid in June but continues to face supply-side constraints (more below). The Nasdaq also stumbled late but clung to a 0.1% gain, notching its second consecutive all-time high. Shifting from equities, Treasury yields reversed most of their Tuesday declines. The curve rose to new daily highs heading into and out of a bland auction of $61 billion of 5-year Treasury notes. The awarded yield of 0.904% nearly matched the when-issued yield of 0.902% while the bid-to-cover ratio was closely aligned with results from recent auctions. For the day, the 2-year yield rose 2.2 bps to 0.26%, a new high since April 2020, while the 5-year yield added 2.6 bps to 0.88%. The 10-year yield matched the 2-year yield’s 2.2-bp increase to end at 1.485%.

While Treasury yields were more or less unchanged before 7 a.m. CT, stocks index futures had moved around 0.5% higher amid a generally upbeat global session. Equities across Asia moved in different directions to leave a continent-wide index relatively flat on the day. However, all the major European indices were comfortably in positive territory, pushing the Stoxx 600 up 0.7% at 6:50 a.m. CT. Measures of business confidence in France and Germany rose more than expected in June, echoing the positive sentiment from PMI reports yesterday signaling economic acceleration. The U.K.’s FTSE 100 was 0.5% higher after the Bank of England’s latest decision and U.K. yields were flattening lower. The central bank maintained its previous policy stance and cautioned against “premature tightening,” despite revising its near-term growth outlook higher and acknowledging inflation has run faster than previously expected. Officials believe “the economy will experience a temporary period of strong GDP growth and above-target CPI inflation, after which growth and inflation will fall back,” conceding “there are two-sided risks around this central path.” Just before this morning’s inflow of U.S. data, earlier market levels were intact.


NOTEWORTHY NEWS

U.S. Recovery Continues Amid Persistent Price Increases and Supply-Side Disruptions: Preliminary Markit PMIs showed manufacturing’s expansion broadened unexpectedly in June while services activity cooled more than anticipated. The Manufacturing PMI inched up from 62.1 to a new record of 62.6, supported by continued expansion of activity, but also by supply disruptions, even-higher prices, and growing orders backlogs. Supplier delays were the worst on record and prices paid hit a series high. The Services PMI fell from 70.4 to 64.8, disappointing expectations of 70.0 but still marking the second strongest in records since late 2009. Services activity remained solid but price increases continued. Notably, both surveys indicated hiring remained difficult and an impediment to activity. A Markit economist said the data “point to further impressive growth of the US economy” and that the slowing was “as much due to capacity constraints” as it was to “any cooling of the economy.” “Prices…are still rising very sharply, record supply shortages are getting worse rather than better, firms are fighting to fill vacancies,” he added, ominously concluding that, “While the second quarter will likely represent a peaking in the pace of economic growth, a concomitant peaking of inflation is far less assured.”

New Home Sales Trend Weakens Notably As Rising Prices Weigh: Another housing report showed rapidly rising prices are continuing to weigh on the pace of sales. Annualized new home sales of 769k in May came up well short of the 865k tally expected and marked the slowest sales pace since May 2020. Adding to the disappointment, the sales pace in each of the prior three months was revised lower, totaling to a downward revision in sales over that period of 108k units. The median transaction price in May of $374.4k was the highest on record and represented an 18.1% gain from a year ago, matching the strongest annual increase since 2012.

Bostic (2021 Voter) Says Tapering Decision May Be Close after Claiming 2022-Hike Dot: A bit contrary to a perception of his policy view deduced from previous remarks, Atlanta Fed President Bostic claimed one of the June dots calling for a rate hike next year and said he expects two more rate increases in 2023. Of more immediate concern, he said the economy is well on its way in recovery and a couple more months of strong job growth could support the commencement of tapering asset purchases. Implying that he expects the process to be completed before the end of next year, Bostic said he would prefer to complete the tapering process before moving forward with the projected rate hike he has penciled in for late in 2022.

Fed Governor Bowman Notes Work to Do on Employment, “Some Time” for Supply Disruptions to Ease: Fed Governor Bowman expects that continued expansion in the second quarter has pushed the size of the U.S. economy above its pre-pandemic level. She quickly cautioned, however, that, “even with this progress, there are over 10 million people still without jobs who are either actively looking for employment or have since left the labor force.” Discussing the recent firming of inflation, “These upward price pressures may ease as the bottlenecks are worked out, but it could take some time, and I will continue to monitor the situation closely and will adjust my outlook as needed.”


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