The Market Today
Initial Claims Rise Slightly but Story of Tightening Labor Market Remains Intact
by Craig Dismuke, Dudley Carter
Today’s Calendar – Initial Claims Rise Slightly but Story of Tightening Labor Market Remains Intact: In the early data, initial weekly jobless claims were about in line with expectations. Initial claims rose 3k last week to total 241k compared with estimates for 240k new filings. Initial claims for the week ended June 10 were revised up 1k to 238k. With initial claims softening somewhat over the last several weeks, the 4-week average rose marginally to 244.8k, the highest level since the first week of April. Continuing claims rose 8k for the week ended June 10, totaling 1.944MM compared with estimates of 1.928MM. Even with the modest 3k rise in initial claims and slight uptick in the continuing series, the story of a tightening U.S. labor market remains unchanged.
At 8 a.m. CT, the FHFA will release its April home price index which is expected to show prices notched another healthy gain MoM. At 9 a.m. CT, the Conference Board’s latest Leading Index is expected to show a 0.3% improvement for the month of May. Also at 9 a.m., Fed Governor Powell will appear before the Senate’s Committee on Banking, Housing, and Urban Affairs with the focus likely to be on financial system regulations. Based on an early release of Powell’s prepared remarks, the general tone should signal a Fed willing to revisit post-crisis financial regulations to assess the reasonableness of the cost-benefit relationship of the post crisis rules. The Kansas City Fed’s Manufacturing Index will be the last report of the day. At 10 a.m. CT, the index is expected to rise from 8 to 9 in June.
Overnight Activity – Market Sentiment Remains Shaky Despite a Slight Uptick in Oil: Sovereign debt yields show no signs of a global consensus on risk bias as equity investors remain cautious on Thursday despite a bit of price support for oil. After vacillating between gains and losses, crude prices moved higher into positive territory within the several hours (U.S. +0.7%, Brent +1.0%). However, with both major crude classes in bear market territory, the damage to investors’ psyche, at least for now, appears to be done. The energy sector is the biggest drag on the Stoxx Europe 600 which is down 0.3% midway through Thursday’s session. U.S. equity futures are slightly tilted towards a negative start for the major indices. Sovereign yields are mixed but a daily flattening trend is consistent across most major global curves. Treasury yields are lower by 0.8 bps to 1.5 bps inside of 30 years. The 2-year note is yielding 1.34%, the 5-year note is at 1.76%, and the 10-year yield is trading at 2.15%.
Yesterday’s Trading Activity – Stock Sectors Diverge as Oil Slide Continues: A battle between health care (+1.3%) and tech (+0.7%) companies and those focused on energy (-1.6%) left the S&P almost unchanged Wednesday. The Dow fell 0.3% but the Nasdaq, less affected by energy, rallied 0.7%. After a soft rebound early Wednesday, crude prices sank to a 10-month low despite data showing a weekly draw of U.S. crude and gasoline inventories. Notwithstanding the drop in supply, U.S. crude production continued to ramp up, reaching its highest level in almost two years. The price of Brent fell 2.7% and officially joined its U.S. counterpart in a bear market. The Dollar weakened but remained near the top of its one-month range (near the bottom of its post-election range). The Treasury curve was little changed when all was said and done. The 2-year yield rose just 0.4 bps (1.35%), the 5-year yield finished 1 bp higher (1.77%), and the 10-year yield added 0.7 bps (2.16%).
Existing Home Sales Rebound as Buyers Hasten the Decision-Making Process: The housing data finally received some positive news with May’s existing home sales unexpectedly rebounding to their third best pace of the current cycle. Sales rose 1.1%, compared with estimates for a 0.4% decline, to an annualized pace of 5.62MM units. Activity improved in three of four regions; sales in the Midwest declined 5.9%. Despite the uptick in the pace of activity, inventory pressure eased slightly with months’ supply rising 0.1 to 4.2 months. Despite the MoM increase in homes available for sale, low supply remains a relevant story. On a YoY basis, inventory levels fell for a 24th consecutive month. On the pricing front, the median price of a home sold rose to a record high – prices are not adjusted for changes in the sales mix. Despite persistent low supply and continued price increases, demand remains steady; the median home sold in just 27 days, the fastest since the NAR began tracking the metric in 2011.