The Market Today
Continuing Jobless Claims Jump 2.6 Million on Volatile State-Level Data
by Craig Dismuke, Dudley Carter
CORONAVIRUS UPDATE (VS Coronavirus Chartbook – PDF)
A Quiet Day of Stimulus Headlines: There were few meaningful headlines Wednesday related to the virus or vaccines. In Europe, Germany extended its lockdown to March 7 over concerns about variants but said it hopes to loosen restrictions from then. In the U.S., New York announced a partnership with the Federal government for two vaccination sites in Queens and Brooklyn and three additional mass vaccination sites are being setup in Texas.
24 HOURS OF MARKET ACTIVITY
Futures Edge Higher Overnight After Stocks Struggled for Direction Wednesday Near Record Levels; Weak Inflation Knocks Treasury Yields Lower: Ending the day mixed and little changed, the Nasdaq slipped 0.3% from a record level while the Dow recovered 0.2% to a new all-time high. The S&P 500 closed essentially flat amid the broader lack of direction that resulted in another day of split sector performances. Energy companies moved from last place Tuesday to the front of the pack Wednesday as U.S. oil prices rose for an eighth day to a more than 12-month high. U.S. crude inventories contracted more than expected to their lowest level since March, although gasoline stocks did rise. A drop in the major U.S. automakers was the biggest drag and weighed on consumer stocks. Prior to the weekly jobless claims report, futures on the major indices had risen between 0.2% and 0.5% early Thursday morning after stocks in both Asia and Europe posted modest gains.
The uncertainty evident in equities also played a role in lower Treasury yields on Wednesday, although the sharpest decline occurred after January’s CPI inflation report showed broadly softer core inflation pressures. The 10-year yield fell from its daily high above 1.17% to 1.13% shortly after the inflation data was released, eventually drifting lower to close down 3.4 bps on the day at 1.12%. The curve inside of 30 years was less than 0.5 bp higher ahead of the release of the claims data and little different afterwards.
Dovish Powell Signals Indefinite Balance Sheet Growth, Lack of Concern About Inflation: Fed Chair Powell didn’t waiver Wednesday from prior pledges to do whatever is needed to assist in seeing the U.S. economy through to the other side of the pandemic. He repeated that the economy is “still very far” from full employment with risks tilted to the downside, in part because of the slow vaccine rollout. While the Fed remains “strongly committed” to using its tools to meet its mandate, the current economic situation is more heavily in need of fiscal assistance. While some are concerned the mix of prolonged rates and historic fiscal stimulus could stoke significant inflation pressures, Powell said he expects any increase will be neither large nor sustained. Further, if unwanted inflation does appear, the Fed has the tools to shut it down. Addressing another aspect of policy that remains front of mind for investors, Powell noted that, “The balance sheet will be the size that it needs to be to provide support to the economy.” Eventually, he went on, “we will return to a place gradually and with tons of transparency and not any time soon.”
U.S. Deficit Hits Record in January: The U.S. Treasury reported a larger-than-expected monthly budget deficit for January, continuing a trend that has been in place since the COVID-19 pandemic shutdown economic activity and spurred fiscal authorities to enact historical stimulus efforts. The $162.8 billion monthly deficit was wider than the $157.5 billion expected and pushed the trailing 12-month deficit to a record $3.48 trillion. While receipts rose $12.4 billion during the month, outlays jumped $142 billion to $547 billion. Most of the deficit was funded out of the Treasury’s operating cash with only $11.5 billion supported by public borrowing.
Initial Jobless Claims Decline After Revision Higher: Initial jobless claims for the week ending February 6 were higher than expected thanks to upward revisions to the previous week’s report. However, initial claims still fell 19k, as expected, to 793k. Initial PUA claims were also revised higher but also declined in the current reference week, down 34k to 335k. Total new claims for unemployment insurance, including both programs, fell 53k for the week to 1.13 million.
Continuing Claims Rise Sharply, Noisy State-Level Reporting Continues: Continuing claims saw even more volatility, particularly from a few states. Traditional continuing claims for the week ending January 23 were revised up from 4.59 million to 4.69 million, but fell 145k to 4.55 million during the current reference week (Jan. 30). Continuing PEUC claims, however, were up 1.17 million to 4.78 million. Almost all of that increase came from the state of California which reported 1.08 million new PEUC claims. Continuing PUA claims also jumped a large amount, up 1.50 million to 8.71 million. Pennsylvania reported a 381% increase in continuing PUA claims, up 972k for the week. California also reported a large increase, up 406k. Total jobless claims filed for the week ending January 23 rose 2.6 million to 20.4 million, the highest level since November.