The Market Today
Another Disappointing Jobless Claims Report
by Craig Dismuke, Dudley Carter
Another Disappointing Jobless Claims Report: Initial jobless claims for the week ending January 15 rose 55k to 286k, well above expectations. On a non-seasonally adjusted basis, claims declined from 421k to 337k with 46 states reporting declines. Claims have historically been volatile in the first few weeks of the year and 2022 has proven to be no exception. However, with the health situation likely keeping some workers temporarily out of work, it is difficult to determine how much of the disappointing result is from the Omicron wave and how much is related to the seasonality of claims. Continuing claims for the week ending January 8 also disappointed expectations, rising from 1.55 million to 1.64 million.
Philly Fed Index Diverges from New York Index, Rises in January: The Philadelphia Fed’s regional report on manufacturing activity in January diverged from the New York Fed’s report which earlier in the week plunged to its lowest level since the initial pandemic shutdowns. The Philadelphia Fed’s report beat expectations increasing from 15.4 to 23.2. The report showed mixed results with new orders and shipments rising but the employment index falling. The delivery times index declined from +31.4 to +25.2, a positive sign for the supply chain issues. However, the prices paid index rose from 66.1 to 72.5 erasing some of the December improvement.
Existing Home Sales: The December existing home sales report (9:00 a.m. CT) is expected to show a small 0.6% decline after a strong November report.
OTHER ECONOMIC NEWS
President Biden Supports Fed’s Hawkish Pivot, Sees Need to Break Up Build Back Better: President Biden publicly supported the Fed’s plans to tighten policy in a wide-ranging speech Wednesday while acknowledging the struggles his administration has faced in attempting to pass its Build Back Better plan. “The critical job in making sure that the elevated prices don’t become entrenched rests with the Federal Reserve,” he said, adding that “Given the strength in the economy, and the pace of recent price increases, it’s appropriate [for the Fed]…to recalibrate the support that is now necessary.” On his spending plans, the President said, “I’m asking for practical things the American people have been asking for for a long time…And I think we can get it done.” However, he acknowledged that Build Back Better may need to be broken up into pieces to “get as much as we can now and come back and fight for the rest later.” As highlighted in our 2022 Economic Outlook, expectations are tempered for additional, economically meaningful fiscal packages over the next three years.
Stocks Retreated Late as Treasury Yields Fluctuated Near Cycle Peaks: U.S equities opened stronger after more mostly positive earnings reports and oscillated between gains and losses for most of Wednesday’s session. However, the major indices sold off sharply in the final half hour to close at session lows. Tech companies and financials were particularly hard hit although the weakness was broad across most sectors. The Nasdaq led declines with a 1.2% loss that pushed the index into a technical correction, down 10.7% from its all-time peak on November 19. The S&P 500 and Dow both fell by just under 1% Wednesday. Stocks’ recent weakness has been attributed to a spike in Treasury yields this year that has coincided with growing expectations for the Fed to tighten policy more aggressively as it seeks to bring down inflation. Overnight, the 10-year Treasury yield briefly touched 1.90% for the first time since January 2020 as Germany’s 10-year yield turned positive for the first time since May 2019. After sliding back through most of U.S. trading to as low as 1.82%, a bottom that was set shortly after a strong auction of 20-year notes, the 10-year Treasury yield ended the day 0.9 bps lower at 1.87%. The 2-year yield took a similarly shaped roundtrip to close up 1.5 bps at 1.06%. Fed funds futures continued to fully price in at least a 25-bp hike in March and roughly 100 bps of tightening in 2022.
Mixed Stocks as Yields Fall: Stocks were mixed across Asia and Europe Thursday but U.S. futures stabilized as Treasury yields matched declines for sovereign yields across Europe. Stocks in China trailed larger gains in Japan and Hong Kong despite the country’s central bank cutting its 1-year and 5-year loan prime rates. On Monday, the People’s Bank of China cut the 1-year medium-term lending facility rate, a key rate for lending to banks. Tech shares were among the best performers overnight after leading Wednesday’s weakness, lifting Nasdaq futures 0.7% higher at 7 a.m. CT. Dow and S&P 500 futures rose 0.3% amid earnings reports from several large U.S. regional banks and American Airlines. Prior to the release of the jobless claims data, the 2-year Treasury yield was 2.2 bps lower and the 10-year yield had declined 3.2 bps. Germany’s bund yield slipped 2.4 bps to -0.04% following a brief move into positive territory yesterday and oil prices edged down from seven-year highs. After the mixed first wave of data, the 2-year yield was 2.8 bps lower at 1.03% and the 10-year yield was down 4.3 bps at 1.82%.