The Market Today
Initial Jobless Claims Hit New Near-Fifty-Year Low
by Craig Dismuke, Dudley Carter
Initial Jobless Claims Tumbled to Near-Fifty-Year Low: Initial jobless claims were surprisingly positive in the week ended January 18, with new filings falling 13k to 199k, a new low back to November 1969. On a four-week average basis, new claims are back down to their lowest level since early November. While they are excluded from the headline figure, the number of federal workers who filed for unemployment benefits, presumably because they have been furloughed, rose 15k to just over 25k. Continuing claims, which are lagged a week, fell 24k two weeks ago to 1.7MM, the lowest in four weeks. Despite the recent market volatility, the continued concerns of a trade-induced global slowdown or recession, and the historic partial government shutdown, U.S. labor data remains strong and employers remains hesitant to reduce their headcount.
At 8:45 a.m. CT Markit will release its U.S. PMI results for January which economists expect will show activity continued to slow into the early part of 2019. Markit’s slate of European releases missed the mark overnight and have helped drag yields lower on Thursday (more below). The Conference Board’s Leading Index for December will follow at 9 a.m. and is expected to register its second monthly decline in a three-month period for the first time since early 2016. At 10 a.m., the Kansas City Fed will update its manufacturing index for January which economists have projected will hold steady at its lowest level in over two years. Considering numerous first-tier economic reports from government agencies have been delayed because of the ongoing shutdown, these usually uneventful reports could receive a larger-than-usual amount of attention.
Yesterday – Stocks Recouped Early Gains As Earnings Offset Uncertainties: The Dow, helped by positive earnings pushing up a couple of key component companies, outperformed the S&P 500 and Nasdaq. The major indices gapped higher at the open after Procter & Gamble, United Technologies, and IBM all surprised analysts with strong quarterly earnings releases. But the peak came in the first hour and a slow, steady decline landed all three in negative territory before lunch. The government shutdown remained a focal point for investors as it dragged into a historic 33rd day on Wednesday. The top economist in the White House, Kevin Hassett, said in an interview that the ongoing partial shutdown could cause economic growth to flatline in 1Q if it carries on into March, but would be followed by a “humongous” recovery once an agreement to re-open is reached. That agreement could be further away than furloughed federal workers would like based on the latest back-and-forth between President Trump and Speaker Pelosi. The President sent a letter to the Speaker accepting her original invitation to give the State of the Union address next week. Speaker Pelosi quickly replied that she wouldn’t consider a resolution to allow the speech. Nonetheless, stocks recovered in the afternoon with the Dow ending 0.7% higher than it began and the S&P 500 up 0.2%. Treasury yields gave up early gains to end the day little changed. The 2-year yield fell 0.4 bps to 2.58% while the 10-year yield, after earlier climbing as much as 3.8 bps, finished up just 0.2 bps at 2.74%.
Overnight – Global Stocks Rise on Earnings, Yields Fall on Weak European Data: Positive tech earnings across Asia and Europe have helped boost the sector on Thursday and lift major indices more broadly. China’s CSI was 0.6% higher and Europe’s Stoxx 600 had gained 0.4% with the tech sector sitting atop both. However, core bond yields are falling before the U.S. session opens after January PMI data reinforced fears of a European slowdown. Weakness in France’s services PMI (-1.5 points to 47.5) dragged its composite index down 0.8 points to 47.9, the lowest level in four years. Germany’s services PMI exceeded estimates at 53.1 which helped lift its composite PMI (52.1) for the first time in five months. However, Germany’s manufacturing index fell unexpectedly to 49.9, its lowest reading since November 2014. New manufacturing orders hit a more-than-six-year low and have now contracted for four consecutive months. Combined, the disappointments dragged down the Eurozone-wide composite to 50.7, its lowest since July 2013. The continued weakness across the data could lead to some interesting questioning of ECB President Draghi at this morning’s press conference. The central bank, which ended new net asset purchases this month, left its policy unchanged at Thursday’s meeting and continued to say it would keep rates unchanged “at least through the summer of 2019.” In the U.S., tech is leading U.S. futures modestly higher and Treasury yields are lower (2s -2.3 bps at 2.56%, 10s -2.9 bps at 2.71%).