The Market Today
Jobless Claims Groan as State-Level Results Changing
by Craig Dismuke, Dudley Carter
Jobless Claims Jump in Midwest: Initial jobless claims for the week ending July 17 rose 51k to 419k, the highest level in nine weeks. The results were uneven across states with only 18 reporting increases. However, Michigan, Kentucky, Texas, and Missouri all reported outsized increases helping to push the total higher. Initial PUA claims also increased 14k to 110k, bringing total new claims filed up 65k to 529k.
Continuing Claims Remain Volatile, States Continue to End Pandemic Programs: Continuing jobless claims for the week ending July 10 also disappointed expectations declining only 29k to 3.24mm. California, alone, reported a 114k increase for the week while Texas reported a 40k increase. The pandemic programs continued to show positive results for the week ending July 3. Continuing PUA claims for the week ending July 3 fell 553k to 5.13mm, its lowest level since the onset of the program, while PUA-extension claims fell 576k to 4.14mm. There are now seven states, which all ended the programs early, reporting no pandemic-program continuing claims. Total continuing claims for the week ending July 3 fell 1.26mm to 12.57mm, the lowest level since last spring.
Home Sales and Corporate Earnings: The June existing home sales report is expected to show sales up 1.7% after declining each month since January. Also at 9:00 a.m., the leading index is expected to increase 0.8%. The Kansas City Fed will release its July manufacturing activity report at 10:00 a.m. There are many, many companies reporting earnings today, including Twitter and Snap after the close.
24 HOURS OF MARKET ACTIVITY
Stocks Continue to Move Higher, Pushing Monday’s Tumbles Deeper into the Past: Stocks closed with solid gains Wednesday, ending near the highs of the day and adding to Tuesday’s rebound from steep Monday declines. The Nasdaq rose 0.9% as the Dow gained 0.8%. The S&P 500 also added 0.8% and was supported by positive trading days for eight of its 11 underlying sectors. Corporate earnings activity appeared to overtake concerns about the Delta variant as several household names from across various industries reported solid results over the last day or two. Energy was the top performing sector as crude clawed back more of its early-week loss with a more than 4% rally on Wednesday. Trailed closely by other cyclical sectors, financials finished as the day’s second top performer, boosted by bank stocks that benefited from a higher and steeper yield curve. Treasury yields had pushed higher overnight during European trading and took another leg up early in the U.S. session. The weaker auction of 20-year Treasury bonds had a fleeting impact on the intraday charts, but likely solidified the move higher in yields. Closing near its high of the day, the 10-year yield rose 6.7 bps to 1.288%. The 5-year yield rose 5.1 bps to 0.736% while the 2-year yield rose 0.8 bps to 0.208%.
Monday’s losses moved further into the rear view mirror overnight as global stocks rose again Thursday ahead of the weekly update on U.S. jobless claims and the ECB’s first policy decision since adopting a new inflation target. U.S. futures had posted modest gains in overnight trading, trailing a 1.3% rise for MSCI’s Asia Pacific Index and lagging behind Europe’s Stoxx 600, which had added 0.9% just minutes before the ECB’s policy announcement at 6:45 a.m. CT. Mixed and little changed heading into the ECB’s announcement, sovereign yields began to move higher as investors digested the ECB’s new statement language and format, revised to reflect its new inflation target (more below). After allowing several minutes for markets to digest the amended policy document, European yields and the Euro settled back to new lows for the day. Treasury yields followed a similar pattern, rising with European yields as the new statement was released but falling back several minutes later, with the curve essentially unchanged before the latest jobless claims data. After the headline jobless claims results disappointed expectations, Treasury yields fell to new lows for the day. From the 5-year Treasury and out, yields were down more than 2 bps, with the 10-year yield at 1.265%.
ECB’s Policy Statement Updated for New Inflation Target: While the ECB’s policy rates and tools were left unchanged on Thursday, its statement was revised to reflect its updated paradigm on inflation targeting under its refreshed framework. In a new lead paragraph, the ECB reminded that it raised its inflation target because, “The key ECB interest rates have been close to their lower bound for some time and the medium-term outlook for inflation is still well below the Governing Council’s target.” Previously, the central bank’s forward guidance said policy rates would remain low until “it has seen the inflation outlook robustly converge to a level sufficiently close to, but below, 2% within its projection horizon.” Updated for the new symmetric 2% inflation target over the medium term, the forward guidance now says rates will remain low ”until it sees inflation reaching two per cent well ahead of the end of its projection horizon and durably for the rest of the projection horizon, and it judges that realised progress in underlying inflation is sufficiently advanced to be consistent with inflation stabilising at two per cent over the medium term. This may also imply a transitory period in which inflation is moderately above target.” Guidance and language around its regular asset purchases, emergency asset purchases, and refinancing operations were largely the same as in June.