The Market Today
Initial Jobless Claims Lowest in 49 Years, Signs of Payroll Rebound Tomorrow
by Craig Dismuke, Dudley Carter
Labor Market Indicators Continue to Be Positive with Claims Dropping to Lowest Level in 49 Years: Initial jobless claims fell to their lowest level in 49 years, dropping from 212k to 202k in the week ending March 30. The decline pulled the 4-week moving average down from 217.5k to 213.5k, the lowest level of the year and confirmation that the elevated claims data from January and February were temporary. Heading into tomorrow’s March labor reports, the leading indicators are broadly positive indicating a rebound from February’s shockingly weak report. The initial jobless claims data are the lowest (during the reporting period) since November, both ISM employment subindices are up from February, and the Philadelphia Fed’s employment subindex was up strongly in March, to mention a few.
Fedspeak and Trade Negotiations: Cleveland Fed Bank President Mester and Philadelphia Bank President Harker are both scheduled to speak at noon CT today. Also worth watching, President Trump will meet with Chinese Vice Premier Liu He in Washington as part of the ongoing trade negotiations.
Yesterday – Treasury Yields Rose with Stocks as Investors Hoped for Trade Deal: Disappointing U.S. economic data kept U.S. stocks from closing near their peaks, but Wednesday’s modest 0.2% gain was enough to extend the S&P 500’s recent win streak and land the index at its highest level since October 9. The index’s current five-day uptrend, matching the longest stretch since February 2018, started last Thursday on hopes the U.S.-China trade negotiations were progressing. Two days of trade discussions in Beijing ended Friday with a tweet from Treasury Secretary Mnuchin that talks had been “constructive,” and were accompanied by news reports that China had softened its stance on tech transfers. Stronger sentiment carried over this week after Chinese PMIs topped estimates, U.S. manufacturing data outpaced expectations, and the EU’s services PMI added to the signs of stability. Despite ADP’s payroll estimate and the ISM’s services sector survey (more below) disappointing expectations on Wednesday, trade hopes kept sentiment steady and helped global yields recover from last week’s levels which were the lowest in some time. On Wednesday, cooperation across the aisle of the UK parliament on Brexit pushed the 10-year Gilt yield up 9.3 bps, adding additional upward pressure on global yields. The 10-year German yield closed in positive territory for the first time in nine days and the 10-year Treasury yield rose 5.0 bps to 2.52%, up 15.5 bps from a week ago. The 2-year yield rose 3.2 bps to 2.34% and the 5-year yield added 4.0 bps to 2.33%.
Overnight – Market Sentiment Levels Off: Global markets were mixed overnight as investors watch for headlines out of U.S.-China trade talks and await tomorrow’s update on the U.S. labor market. Bloomberg reported yesterday that current discussions include giving China until 2025 to meet their pledge of increased commodity purchases and allowing U.S. companies complete ownership rights of businesses domiciled in China. White House adviser Kudlow said yesterday that China has “for the first time acknowledged that we have a point” on tech issues, and President Trump is set to meet with Chinese Vice Premier Liu He today at the White House. China’s CSI 300 rose 1% overnight, although the rest of Asia was mixed. Germany’s DAX was one of the only positive performers in Europe, up just 0.1% midway through the session, while yields remain lower across the region. German factory orders, expected to tick up 0.3% in February, sank 4.2% to match the second biggest monthly drop since the recession. Germany’s 10-year yield dipped 1.5 bps and back into negative territory. Thursday’s caution also kept U.S. equity futures lower, putting the S&P 500’s positive run at risk. In the Treasury market, the 2-year yield pulled back 1.4 bps to 2.32%, the 5-year yield edged 1.8 bps lower to 2.31%, and the 10-year yield fell 1.6 bps to 2.51%. Those declines were trimmed and the curve moved back close to unchanged after jobless claims fell to a new 49-year low.
ISM Services Survey Disappoints in March at 19-Month Low: The ISM’s non-manufacturing report was almost the complete opposite result from the manufacturing survey released on Monday. Whereas Monday’s ISM’s manufacturing index exceeded estimates on surprisingly strong production and new orders, the services survey was dragged down more than expected by weakness in those same categories. After providing one of the few positive data points last month, the headline services PMI dropped 3.6 points to 56.1 in March, its lowest level in 19 months. In the details, employment firmed up but actual activity indicators weakened. The business activity index dropped 7.3 points to a 20-month low of 57.4 and new orders fell 6.2 points to 59.0, the second weakest level in 15 months. Considering the report covers a larger portion of the economy than the manufacturing survey, the disappointment weighed on optimism from earlier in the week and keeps the near-term outlook unclear for now.