The Market Today
Jobless Claims Drop to Near-Five-Decade Low; CPI Inflation Remains Mild
by Craig Dismuke, Dudley Carter
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Jobless Claims Drop to Near-Five-Decade Low; CPI Inflation Remains Mild: In two reports which seem to be a microcosm to the broader economic environment, initial jobless claims showed a labor market that is hotter and hotter while the inflation data remained stubbornly mild.
In the latest sign that the labor market remains strong, initial jobless claims rose a better-than-expected 214k for the week of July 7. That level was just 5k more than the nearly five-decade low set back in April (209k) and the fourth strongest over that period. The four-week average for claim was unchanged at a strong 224.5k. Continuing claims, which are released on a week lag relative to initial claims, were almost flat near their lows since the 1970s. The claim data is consistent with the layoffs data from Tuesday’s JOLTS report which fell back to its fifth lowest level of that series.
In the June CPI inflation data, headline prices rose just 0.1% MoM on weaker energy services prices (electricity and natural gas) bringing the YoY rate up to 2.9%. Recall that the above-2% readings should be temporary, the result of base effects from weaker 2017 reports rolling out of the calculation. At the core level, prices rose 0.2% MoM with decent traction in the bigger categories, bringing the YoY rate up from 2.2% to 2.3%. Rents rose 0.3% MoM, new car prices rose 0.4%, used car prices were up 0.7%, and medical care services rose 0.5%. All of these readings point to a slight firming of core inflation.
Yesterday – Trade Fears End Stock Run, Sink Energy Prices; Treasury Yields Surprisingly Calm: The S&P 500 fell for the first time in five sessions as U.S. equities moved lower with other major global indexes in response to the White House proposing tariffs on an additional $200 billion of Chinese imports. Equities had recovered over the last four sessions as investors pushed trade worries aside, despite the first round of U.S.-China tariffs taking effect last Friday. But Tuesday evening’s White House announcement reinvigorated fears that things could escalate into a more damaging trade war. Eleven of the S&P 500’s 12 sectors weakened with energy companies tumbling more than 2% to lead all losses. That developed as crude prices crashed the most in more than a year. U.S. WTI fell 4.7% while Brent crude sank a stunning 6.1% amid fears that global trade could be disrupted. Even more impressive was that those price drops occurred even after the EIA reported a 12.6MM barrel drawdown of U.S. inventories, the largest since September 2016. Despite the volatility in other asset classes, Treasurys were relatively calm. After an up-and-down day of trading, the 10-year yield ended the day unchanged at 2.85%. The 2-year yield rose 0.8 bps to 2.58%, enough to lower the 2s10s spread to a new cycle low of 26.7 bps.
Overnight – Sentiment Steadies after Stumbling (Again) Wednesday on Trade Concerns: Investors didn’t spend long fretting over the U.S.’s proposal to place tariffs on an additional $200 billion of Chinese imports. Equities rose around the globe with China’s major indexes out in front of Thursday’s gains. It’s CSI 300 index snapped back more than 2% and fully erased Wednesday’s fall. While Beijing has promised a forceful response, China’s Vice Minister of Commerce said later “When we have a trade problem, we should talk about it. …We should sit down and try to find a solution,.” As noted in yesterday’s Market Today, the $250 billion of Chinese imports targeted by the U.S. easily exceeds the $130 billion of U.S. goods China can hit in retaliation. Thursday’s recovery also lifted European stocks by 0.7% and boosted U.S. futures ahead of this morning’s CPI report. Treasury yields, which were relatively calm in yesterday’s sell-off, have moved only modestly higher in response to Thursday’s recovery; the 10-year yield was 1.5 bps higher with the 2-year yield up 1.7 bps. The Dollar extended yesterday’s gains after the Euro weakened following the release of the ECB’s June meeting Minutes. Those Minutes “widely noted” that positive inflation-trend developments had become less reliant on the central bank’s net asset purchases but highlighted the updated rate guidance, a pledge to forego a rate hike until after next summer, struck “a good balance between providing sufficiently precise guidance and maintaining adequate flexibility.”