The Market Today
Initial Jobless Claims Drop to Lowest of Pandemic Ahead of April Jobs Report
by Craig Dismuke, Dudley Carter
Initial Jobless Claims Drop to Lowest of Pandemic: Initial jobless claims for the week ending May 1 fell from 590k (revised up from 553k) to 498k, a significantly larger drop than expected to the lowest level since the pandemic began. Forty states reported declines in claims. Initial PUA claims also declined, down 20k to 101k, also the lowest weekly total since the program’s inception. Total new claims for unemployment assistance, cumulatively, fell 112k to 599k.
Continuing Claims Disappoint: Disappointingly, traditional continuing jobless claims increased 37k for the week ending April 24 although most of that was related to the seasonal adjustment (NSA claims rose just 3k as more than half of the states reported declines). The pandemic-related programs saw a decline of 352k continuing claims for the week ending April 17. However, total pandemic program claims remain elevated at 12.29 million, cumulatively. Combining the traditional and pandemic-related programs, the total number of continuing claims for the week ending April 17 fell 405k to 16.26 million.
Financial Stability Report and Fedspeak: There are several Fed officials on the tape today along with the Fed’s release of its semiannual Financial Stability Report. Speaking are New York’s Williams (8:00 a.m. CT), Dallas’s Kaplan (9:00 a.m.), Cleveland’s Mester (12:00 noon), and Atlanta’s Bostic (12:00 noon).
CORONAVIRUS UPDATE (VS Coronavirus Chartbook – PDF)
CDC-Related Developments: The CDC extolled a double-digit decline in cases in recent weeks and the group’s director said “we’re hopeful about these encouraging trends.” She went on to say that the CDC’s virus models show a “sharp decline” in cases by July. In other CDC-related news, a federal judge blocked the CDC’s nationwide eviction moratorium, saying the measure was outside the body’s purview. Advisers to the CDC will meet on May 12 to discuss whether the Pfizer vaccine should be authorized for use in 12- to 15-year-olds; Canada’s health regulator approved the vaccine for that group earlier Wednesday.
In other vaccine developments, the White House said the U.S. would support a movement at the WTO to waive patent protections on vaccines. An industry group said the decision would not have the intended effects of improving health outcomes around the world. Moderna reported positive initial results from a mid-stage trial of its booster shot which indicate the jab increases the level of antibodies against variant strains.
24 HOURS OF MARKET ACTIVITY
Dow Notched a New Record in a Mixed Session After Solid Economic Data
U.S. equities remained volatile on Wednesday, although the Dow returned to positive territory after a morning decline to finish at a new record high. The S&P 500 was also able to cling to a small 0.1% gain after nearly erasing a 0.6% gain from earlier in the day. Cyclical sectors strengthened to offset losses in safer sectors and tech shares following economic data which showed the recovery remained underway in April. ADP estimated that the private economy recovered 742k jobs last month and the ISM showed the services sector expanded at its second fastest rate on record (more below). Despite the solid data, Treasury yields drifted down to close near their lows of the day as equities pared their gains and a host of Fed officials held their line that a pick-up in inflation this year will be transitory (more below). The 10-year Treasury yield slipped 2.6 bps to 1.57%.
Bank of England Leaves Rates and Targeted Stock of QE Bonds Unchanged, But Trims Weekly Purchase Pace Amid Stronger Outlook
Both U.S. equity futures and Treasury yields had edged higher Thursday morning at 7 a.m. CT despite mixed performances for foreign markets. Europe’s Stoxx 600 opened higher after a mixed Asian session but has since declined to traded 0.3% lower. The U.K.’s FTSE 100 and Gilts curve were both little changed after the Bank of England’s latest policy decision. The U.K.’s central bank left its key policy rate and targeted stock of asset purchases unchanged. However, it did slow the weekly pace of those asset purchases, from 4.44 billion pounds to 3.44 billion pounds. It revised higher growth estimates for each quarter in its forecast, pulling a full recovery into the fourth quarter of this year, but said it expects firmer inflation to be transitory. Just before the U.S. jobless claims update, the 10-year Treasury yield had drifted down a bit to +0.7 bps and 1.57%. After the positive claims surprise, the 10-year yield inched back up to 1.58%.
ISM Services Index Expands at Its Second-Fastest Pace on Record: Markit’s initial estimate for its Services PMI in April was revised up from 63.1 to 64.7, an improvement on what was already the strongest reading in records since 2009. The ISM’s Services Index, however, cooled unexpectedly. The 1-point drop to 62.7 disappointed expectations for an all-time high of 64.1 but left the index at its second strongest reading ever recorded. While current activity and new orders edged down from high levels, the employment index increased 1.6 points to 58.8, reflecting the broadest gain for hiring since September 2018. Similar to the manufacturing report released earlier this week, friction between pent-up demand and the supply side of the economy was a common theme throughout the comments. Combined, the reports show the recovery continued at a brisk pace in April.
Chicago Fed President Evans, who votes on policy decisions this year, said the economy still has “some ways to go” to reach the Fed’s goals but that he’s “very optimistic” about the outlook. He hopes a strengthening labor market recovery will bring full employment “in sight before too long” but cautioned that “despite some recent price increases, achieving our inflation goal may prove more difficult.” In his speech A Promising Growth Outlook and Thoughts on Inflation Dynamics, Evans contemplated what happens once base effects fade, prices impacted most heavily by the pandemic “renormalize,” and supply chain issues subside. After discussing results from several modeled scenarios run by his team of economists, Evans concluded that the risk of inflation continuing to “spiral upward” as some fear is “remote.” To that end, Evans said “policy is likely on hold for some time.”
Boston Fed President Rosengren stressed that, despite a much-improved outlook, “significant slack” remains and said he believes the coming “acceleration in the rate of price increases is likely to prove temporary.” “My perspective is that the emphasis on actual outcomes rather than forecasts of rising inflationary pressures when setting monetary policy appears justified,” he concluded, adding that “given the noise in the data, it will be important to carefully filter underlying inflation trends as labor markets tighten.”
Cleveland Fed President Mester said an economic recovery is “clearly underway” and believes it will broaden in the second half of this year as the economy continues to re-open amid rising vaccinations. She is anticipating “significantly higher” inflation in the months ahead but believes pressures will subside in 2022, coming up short of the sustained nature needed for the Fed to consider raising rates.
Fed Vice Chair Clarida went on CNBC and repeated the same talking points Fed Chair Powell has used in recent appearances. The economy is clearly gaining steam but there remains a long way to go. As a result, now is not the time to talk tapering asset purchases.