The Market Today
Labor Indicators Point to Continued Tightening of Market
by Craig Dismuke, Dudley Carter
Initial Jobless Claims Drop to Lowest Level Since 1969 but Seasonal Adjustments May Be Skewing the Picture: Initial jobless claims for the week ending December 4 unexpectedly fell 43k to 184k, the lowest level since September 1969. However, the results did benefit from a favorable seasonal adjustment which is at a heightened risk of distorting the real picture. The risk is heightened because the labor market has not yet fully recovered and the regular seasonal patterns of activity have not yet fully returned. On a non-seasonally adjusted basis, initial claims actually rose 64k to 281k, including increases in 46 states. It is common for there to be a notable, downward adjustment to claims results during the month of December. Even considering the holiday-related volatility around Thanksgiving, the last three weekly claims tallies in combination with other labor metrics have illustrated an ever-tighter labor market. Continuing claims for the week ending November 27 increased 38k to 1.99 million; but, again, Thanksgiving fell in the reference week. On a non-seasonally adjusted basis, continuing claims increased 398k for the week.
Inventories, Household Net Worth, Long Bond Auction: The final revision to October’s Wholesale Inventories report is scheduled for release at 9:00 a.m. CT. The 3Q Fed Flow of Funds report showing the quarterly change in household net worth is scheduled for 11:00 a.m. Also on the calendar, Treasury will sell $22 billion 30-year bonds this afternoon.
Mild Omicron; New Restrictions: The CEO of the largest private healthcare network in South Africa said that patients hospitalized with Omicron have exhibited far milder symptoms. Europe’s CDC said that all Omicron cases so far have resulted in mild symptoms or no symptoms at all. However, more countries announced new restrictions. The U.K. will ask businesses to encourage employees to work from home starting Monday and Denmark will close bars and restaurants. Jefferies will send staff home because of rising cases. In the U.S., the Senate voted 52-48 to block President Biden’s vaccine mandate and testing requirements for private employers. Most expect the House will forego consideration of the bill.
OTHER ECONOMIC NEWS
Job Openings Back Near Records While Quits Edge Down from All-Time High: Total job openings rose from 10.60mm to 11.03mm, the second highest level in records since 2000 behind July’s 11.10mm. Goods-producing sectors accounted for 117k of the 504k new private job openings while the leisure and hospitality sector led with a 251k increase. Government job openings declined 74k, although the weakness was driven by non-education related institutions. Hires cooled and layoffs fell back near a record-low level. Job quits, which have attracted much attention during the current worker shortage, pulled back from September’s all-time high but remained elevated at the third-highest level on record.
Stocks Rose Again and the Yield Curve Steepened on More Positive Omicron Data: Stocks rose Wednesday and the yield curve steepened as weekly optimism that Omicron will ultimately result in mild health effects endured. The weekly recovery in market sentiment hit an air pocket overnight and U.S. futures and Treasury yields turned lower ahead of U.S. trading. A report from Pfizer, however, which said a third dose of its vaccine neutralized the Omicron variant in an early lab study reinvigorated spirits just before 7 a.m. CT. A jump in futures preceded a positive open that ultimately led to a 0.3% gain for the S&P 500, leaving the index within a hair of its record high. Sectors were a mixed bag as some of this week’s strongest performers, including energy and financials, took a breather. Airlines and hotels were among the sectors that posted solid gains. A move up in yields after the Pfizer news hit the wires fizzled on the front end of the curve but was more lasting at longer maturities. After touching a new cycle-high, the 2-year Treasury yield dipped 0.8 bps to 0.68%. The 5-year yield, however, added 2.0 bps to 1.27% while the 10-year yield added 4.8 bps to 1.52%, closing above its 200-day moving average for the first time in seven days.
Risk Markets Decelerate Thursday: Investors appear to have finally taken their foot off the gas Thursday following three-consecutive days of notable strength for risk assets. U.S. index futures were down around 0.3% at 6:45 a.m. CT after stocks traded mixed in Asia and inched lower across Europe. Oil prices dipped for the first time since Friday and Treasury yields flattened slightly on modestly lower yields, trailing larger moves across Europe. U.K. yields fell by roughly 6 bps across the curve, leading the broad declines for European sovereign rates. Some analysts speculated the reintroduction of virus restrictions this week could delay a possible rate hike by the Bank of England at next week’s meeting. Minutes before the jobless claims data were released, Treasury yields had added to overnight declines and were near session lows; the 2-year was 1.0 bp lower at 0.67% while the 10-year yield had dropped 4.6 bps to 1.48%. Despite a surprisingly strong print for seasonally adjusted new claims, yields held onto their declines.