United States
Initial jobless claims totaled 245k, 5k more than expected while last week was revised up by 7k to 255k. The original estimate for last week was 238k. The 4 week average rose for a 2nd week to 242k from 240k last week and off the lowest level since 1973 in the week prior. Continuing claims, delayed by a week, fell by 2k. Bottom line, the pace of firing’s remain very modest at the same time hiring is slowing because of the dearth of labor supply of willing workers. I say ‘willing’ because there are still plenty of people out there in the key 25-54 age group that have chosen not to work or are working off the books. Also because of this and helping to explain the low level of claims, employers are essentially hoarding their employees.
4 week avg claims
While we already know Comey’s prepared testimony, this tweet from Conan O’Brien certainly captures the good TV it will still be when they get to the Q&A: “Tomorrow, me and 12 friends are going to an ESPN Zone to watch the former head of the FBI testify before Congress.”
As there was no smoking gun to Comey’s text, US yields are moving higher for a 2nd day with the 2s/10s spread up to 88 bps. It bottomed at 85 bps on Tuesday. The US dollar is up coincident with this.
2/10 5 years
DXY 1 year
Europe
The Parliamentary makeup of the UK government will definitely be important but for the UK mostly. What is most relevant for markets today will be what Mario Draghi says in his press conference. The most he’ll likely give us is to rid him of the comments that rates can still drop further and QE can be ramped up (aka, forward guidance). There is no credibility in that. As to when the next taper will be, everyone is looking to September but we know that already. Maybe he’ll talk about sequencing in whether the poison of negative interest rates will remain until after QE is done. He seems to want that while others take the other side. Either way, the European bond bubble of epic proportions only ends in one way, no matter how gradual the ECB will be in reversing itself.
A day after reporting a softer than expected factory order number, Germany industrial production in April beat estimates with an .8% m/o/m gain vs the forecast of up .5% and March was revised up by 3 tenths. Because of the timing of Easter this year vs last, the March/April data has been polluted. We know Q1 in the eurozone was strong (relatively speaking) as the final read today of 1.9% y/o/y proves up from 1.7% initially. The question of course is sustainability. We have growing questions about the US economy and China (and thus the rest of Asia) is an uncertain mixed bag. One thing though is for sure, while Draghi remains obsessed with 2% inflation, the economic performance in the Eurozone lately proves that higher inflation is not a precursor to faster REAL economic growth. It instead inhibits it.
Asia
I couldn’t believe my eyes when I saw this story on BN: “BoJ is said to mull how to communicate eventual stimulus exit.” I just assumed that ZIRP/NIRP and QE in Japan was as certain as death, taxes and a disappointing season for my beloved NY Jets. They however don’t want to give “the impression that this is on the agenda anytime soon, according to people with knowledge of discussions at the central bank.” The article went on to say “With inflation still far below target, the BoJ is contending with increasing debate about exit in markets, the media and among some lawmakers. Officials realize it’s unrealistic and unconstructive to try to remain silent on the issue and the BoJ now wants to make it known that it’s conducting simulations internally on how an exit could play out.” I’d love to see what these simulations look like because I’d bet the real world outcome would end up being much different. I did appreciate this comment from BoJ member Iwata: “the BoJ will be accountable for potential impact of exit.” The funniest line from Iwata though was “the BoJ’s easing isn’t to support government funding” even though they own 40% of the JGB market. Remember when Kuroda a few months ago said there was still 60% left to buy? When this story hit at 2am est time, the yen ripped higher to 109.4 but has since lost all of that bounce as the Dollar is bid across the board with the rise in US yields.
With some recent signs that Asian trade data moderated a bit in Q2, China reported a modest upside surprise in May for its exports. Exports in dollar terms were up by 8.7% y/o/y vs the estimate of 7.2%. Exports to the US were higher by 11.7% y/o/y, up by 9.7% to the EU and were mixed to the rest of Asia. Imports were where the biggest beat came as it was higher by 14.8%, well above the forecast of up 8.3% implying that domestic demand is still pretty good. As for the Chinese demand for commodities, on a volume basis, they rose m/o/m for crude oil, refined products, iron ore, steel, copper and soybeans. China’s growth rate will continue to slow but their voracious appetite for raw materials will continue, especially as One Belt, One Road unfolds over the next 5-10 years. In response to the data, the Shanghai comp was higher by 1/3 of a percent as was the H share index. The offshore yuan is weaker and is closing its spread to the onshore yuan to the tightest in two weeks.
Peter is the Chief Investment Officer at Bleakley Advisory Group and is a CNBC contributor.