The Market Today

Jobless Claims Show Noisy State-Level Numbers, but Generally Better Results


by Craig Dismuke, Dudley Carter

TODAY’S CALENDAR

Jobless Claims Show Noisy State-Level Numbers, but Generally Better Results: Initial jobless claims for the week ending June 26 bettered expectations falling 51k to 364k, the lowest level of the pandemic, as 35 states reported improvement.  Initial pandemic-program claims rose 3k to 115k. Traditional, state-level continuing claims for the week ending June 19 disappointed by rising 56k to 3.47 million.  However, 34 states reported lower continuing claims but were offset by a 72k increase reported by California.  The pandemic-related continuing claims programs fell 27k to 11.2 million for the week ending June 12. The states opting to ending the pandemic UI programs early generally saw their pandemic-programs totals decline, particularly those with earlier expiration dates.  However, Texas, which is scheduled to end their programs June 26, reported a 270k increase between the two programs (PUA and PEUC).  States not ending their pandemic-programs early also saw generally better results, although volatility in California’s reporting continued to create noisy results.

Manufacturing, Construction, and Auto Sales: The June ISM Manufacturing Index (9:00 a.m. CT) is expected to inch lower but remain elevated.  If correct, the focus will be on the price indices and the indicators of the supply chain backlog. May’s construction spending data (9:00 a.m.) are expected to increase 0.4% MoM.  While residential construction has been hot, almost all categories of non-residential construction have continued lower. And still hampered by scant supply, May’s auto sales are projected to drop again.

 

24 HOURS OF MARKET ACTIVITY

Stocks and Yields Were Mixed Wednesday, Closing Out Month Impacted by Fed’s Pivot Towards Post-Pandemic Policy Normalization: The major U.S. equity indices capped off another solid quarterly gain with a mixed finish for the month of June. The Dow led Wednesday with a 0.6% gain but trailed for the month with a marginal 0.1% decline. The S&P 500 rose 0.1% yesterday, capping off a 2.2% monthly gain. The Nasdaq, which outperformed in June with a 5.5% gain, slipped 0.2% to end the month. For the quarter, however, the Dow, S&P 500, and Nasdaq all posted solid gains, rising 4.6%, 8.2%, and 9.5%, respectively. Data Wednesday predicted another solid month of recovery for the labor market in June and showed an unexpected bounce for pending home sales. Strong quarterly trading results reflected a strengthening recovery amid strong fiscal support and an easing pandemic. Despite sizeable intraday declines, attributed primarily to month-end rebalancing and positioning, Treasury yields ended little changed. For the month, however, the 2-year yield rose 10.7 bps to 0.25%, near its highest level since March 2020, while the 10-year yield slid 12.7 bps to 1.47%, near the bottom of a four-month trading range. The monthly flattening of the 2-year, 10-year Treasury spread, from 145 bps to 122 bps, reflected the Fed’s pivot towards contemplating normalizing policy as the U.S. recovery gains steam.

Global equities continue to produce mixed results Thursday as the second half of the year gets underway. National indices in Asia were mostly lower while Europe’s Stoxx 600 had added 0.4% around 7 a.m. CT. A second survey showed manufacturing activity in China slowed from May to June. However, Markit’s preliminary estimate of manufacturing activity in Europe, already at a record in data stretching back to 1997, was revised up 0.3 to 63.4. Sovereign yields made mixed moves heading into the weekly U.S. jobless claims and Treasurys were essentially flat on the day. Despite a lack of excitement in those markets, oil prices have rallied sharply overnight to send U.S. WTI above $75 a barrel, its highest level since October 2018. OPEC is currently meeting to discuss forward output levels, with early reports of gradual, and potentially conditional, increases giving prices some support.


NOTEWORTHY NEWS

Pending Home Sales Jumped in May After Steady Slowing to Start 2021: Excluding a surprisingly strong recovery in May 2020 after activity plunged in March and April, May’s 8.0% gain to a four-month high, compared with estimates for a 1% decline, was the widest beat of expectations since 2008. A steady decline in mortgage purchase applications has unfolded since January and pointed to continued weakness in home sales in May. Pending sales, however, jumped strongly in all four geographic regions, indicating broad strength in monthly demand for housing. The National Association of Realtors’ top economist said the monthly gain, in the face of surging prices, “was indeed a surprise.” He added, “The housing market is attracting buyers due to the decline in mortgage rates…and from an uptick in listings.” After some slowing in sales activity to start 2021, months of supply had eased from a record low of 1.9 in January to a still-tight 2.5 as of May.

Fed’s Kaplan (2023 Voter) Sees “Broadening of Price Pressures”: Dallas Fed President Kaplan said he still expects some of the recent rise of inflation to be temporary, but also believes, “We’re seeing a broadening of price pressures that are rippling into a broader range of items.” He said the ADP jobs report released earlier Wednesday was in line with his forecasts, clarifying that while he expects the labor market recovery to continue he isn’t anticipating “explosive” monthly job gains. He said he would prefer beginning the tapering process before the end of the year to allow for a more measured pace and mitigate the risk of having to be more aggressive later.


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