The Market Today
Jobless Claims Improve, CPI Inflation Remains Soft, Virus Continues Surge
by Craig Dismuke, Dudley Carter
CORONAVIRUS UPDATE (VS Coronavirus Chartbook – PDF)
Jobless Claims Continue to Grind Lower: Initial jobless claims for the week ending November 7 improved more than expected, declining 48k from 757k to 709k. Also improved, the number of persons filing PUA claims fell from 362k to 298k, the lowest level since the program’s inception. Total new jobless claims, combining both programs, fell 112k to 1.01 million, the lowest level of the recovery.
Continuing Claims Beat Expectations But Still Show Signs of Longer Challenge: Traditional state-level continuing jobless claims also improved more than expected, dropping 436k to 6.79mm, continuing the improving trend which re-started in mid-September. The improvement was broad with 43 of 50 states reporting declines. Offsetting the decline in the state-level programs, continuing claims in the PUA program increased 101k to 9.433 million and claims in the PEUC extension program increased 160k to 4.143 million. Combining the various programs for the week ending October 23, total persons filing for some form of unemployment fell 374k to 21.2 million.
CPI Shows Services Prices Remaining Soft, Keeping Lid on Inflation Pressure: Consumer inflation was broadly softer than expected in October. Prices were unchanged at both the headline and core levels bringing the year-over-year rates down from 1.4% to 1.2% and 1.7% to 1.6%, respectively. Energy prices rose less than 0.1% and food prices rose 0.2%. Rent prices and the associated metrics did bounce after three very soft months out of the last four. Owners equivalent rents rose 0.22% MoM, the firmest reading since May. However, OER remains softer than the pre-virus trend; OER rose by an average of 0.27% per month from 2015 through January 2020. In other details, lodging away from home prices fell 3.2%, a huge decline that erased all of the recent recovery. Apparel prices and medical care prices were also particularly weak, down 1.2% MoM and 0.4% MoM, respectively.
Fedspeak: There are several Fedspeakers on the calendar today. Fed Chair Powell will speak at a conference hosted by the ECB at 10:45 a.m. CT. Also speaking at the event will be ECB’s Lagarde and BOE’s Bailey. Fed Vice Chair Quarles will address the House Financial Services Committee along with other bank supervisors (11:00 a.m.). Chicago Bank President Evans will speak at 12:00 noon.
Record-High Deficit: Treasury is scheduled to release its October Monthly Budget Statement (1:00 p.m. CT) which is expected to show a new record-high, 12-month cumulative deficit.
Stocks Closed Mixed Tuesday but Sectors Continued to Reflect Reopening Hopes and Treasury Yields Added to Monday’s Rise Spurred by Pfizer Vaccine News: Treasury yields kept pushing higher Tuesday and underlying equity trends continued to favor sectors that will benefit from an economic reopening following Monday’s good news related to Pfizer’s vaccine. After jumping more than 10 bps on Monday, the 10-year yield rose another 3.6 bps to 0.96%, marking its highest level since March. With the 2-year yield inching up just 1.0 bp to 0.18%, the spread between the two securities widened further to 77.5 bps, a new wide back to February 2018. While the S&P 500 closed down 0.1% on the day, shifts in the underlying sectors continued to reflect the optimism that a vaccine could allow the economy to reopen more quickly than some expected. Energy stocks led all gains for a second day as crude added to Monday’s improvement and pushed to its highest level since early September. Financials benefited as did other value stocks, leaving technology related names weaker for a second day. The Nasdaq underperformed with a 1.4% decline while the Dow rose by 0.9%.
Equities Reversed a Portion of the Two-Day Sector Rotation Following Pfizer’s Vaccine Announcement Monday: While the bond market was closed Wednesday in honor and memory of American veterans, equities traded to a mixed closed with technology regaining some ground lost earlier in the week. The Nasdaq rose 2.0% yesterday, reversing a sizable portion of the 2.9% decline from the first two days of the week after Pfizer announced its joint vaccine candidate with Germany’s BioNTech appeared safe and highly effective at protecting against the coronavirus. The news led to a rotation out of tech and into stocks that would benefit more in an economic reopening. The S&P 500 rose 0.8% with tech names leading the gains in a rebound while energy and materials edged down after rocketing higher in the prior two sessions.
Equities Remain Soft as Investors Remain Wary of the Virus Despite Positive Vaccine News: Interest rates are lower Thursday as equities continue to unwind the strong two-day surge that unfolded to start the week on positive reports surrounding Pfizer and BioNTech’s vaccine. Stocks closed near flat in Asia while Europe’s Stoxx 600 pulled back by 1%. U.S. futures were mostly lower, S&P 500 futures were down 0.6%, although tech stocks continued to outperform and keep the Nasdaq even on the day. While a quick vaccine that is safe and effective could be the start of a sustained recovery for the global economy, investors remain watchful and wary of the latest surge of infections that has led to new economic restrictions around the globe, concerned that the stop and start of activity caused by new outbreaks will weigh anew on activity. Data overnight showed the U.K. economy recovered by a record 15.5% in 3Q but industrial and manufacturing production came up short of expectations in September, even before the U.K. was placed back under lockdown in October. The U.K. 10-year yield fell 3.2 bps and was among the larger decliners in Europe. Treasury yields had dropped by even more before this morning’s CPI inflation data and update on jobless claims. At 7:28 a.m. CT, the 10-year yield was 4.8 bps lower at 0.93%, the 5-year yield was down 3.5 bps to 0.42%, and the 2-year yield was down 0.6 bps to 0.18%, moves that held up in the initial minutes following the softer-than-expected inflation report and better-than-expected claims data.
JOLTS Report Echoes Continued Labor Market Recovery: September’s JOLTS report continued to reflect a surprisingly low level of layoffs relative to the signals from the jobless claims data, while other metrics reinforced that the labor market has improved from the April lows but not fully recovered to its pre-pandemic state. Total job openings rose from a revised-lower 6.35 million in August to 6.44 million in September, coming up just short of the 6.50 million expected. Openings fell from 7.00 million in February to 5.00 million at the worst levels in April. Hires continued to moderate and quits remained well below their pre-pandemic pace, despite a monthly gain. Somewhat surprisingly, layoffs fell to a new record low for the series (back to 2000) after rocketing higher in March. Overall, the report, which lags other more timely labor market indicators, echoes the story of a partial recovery for the labor market continuing.