Initial jobless claims rose 2k w/o/w to 244k, 4k more than expected and brings the 4 week average to 242k from 245k because a print of 255k dropped out. Continuing claims, delayed by a week, rose by 6k and is quietly at a 4 week high. Bottom line, the pace of firing’s remain modest for reasons stated here many times.
INITIAL CLAIMS, 4 WEEK AVERAGE
It’s very old news but real Q1 GDP was revised up by two tenths unexpectedly to 1.4%. Keep in mind though, nominal GDP was actually revised down to 3.3% from 3.4% as the price deflator was revised lower by 3 tenths. Personal spending was revised up too but much was related to higher spending on healthcare. Capital spending was revised lower as was spending on structures, both commercial and residential. Trade was revised higher while inventories were even more of a drag which led to an upward revision to real final sales to 2.6% from 2.2%. Corporate profits after tax and adjusted were revised slightly lower to a 4.1% y/o/y rise vs 4.3% in the previous report. Without adjustments they were down by 7.3% y/o/y. Thus, in the aggregate for corporate America, the profit picture was different than the focus on S&P 500 companies.
After seeing U2 last night at MetLife Stadium, I decided to get a bit creative this morning after watching the bipolar behavior of our stock market the past two days. I’m going to take the titles of a few of U2’s songs and put it together in a commentary of what we witnessed. If you are not familiar with their music, please bear with me. I’ll start by saying there is no question that markets move in ‘Mysterious Ways’ when ‘Some Days Are Better Than Others’ for reasons we cannot always explain. Tuesday was a ‘Bad’ day, whether due to worries about the tightening of monetary policy and/or disappointment with the delay of healthcare reform. Wednesday’s sharp snapback was a statement where markets screamed out that ‘With or Without You,’ referring to central bankers and/or healthcare/tax reform, we will power higher as it certainly was a ‘Beautiful Day’ in stocks as buyers on the dip and the mo traders both said ‘I Will Follow’. The bears certainly sang out, ‘I Still Haven’t Found What I’m Looking For.’ Either way, the 2 day performance has stocks essentially ‘Running to Stand Still.’ We are beginning to see at least in the mega cap names a case of ‘Vertigo’ and we have to ask whether this behavior is the beginning of an ‘Unforgettable Fire’ in stocks as central banks are no longer our friends. We all know the ‘Desire’ for central banks to remove themselves from their extraordinary policies but we also have to ask if whether they are ‘Stuck In a Moment You Can’t Get Out Of.’
European markets continue to focus on what Mario Draghi said on Tuesday and not the one line walk back printed on the Bloomberg News wire yesterday. European sovereigns yields are right back higher again with a selloff across the board. Looking at the behavior since Friday, the German 10 yr yield is now up 17 bps, the French 10 yr yield is higher by 16 bps, the Italian 10 yr yield has jumped by the same amount and Spain is up by a smaller 11 bps. On the heels of Mark Carney’s comments on top of Draghi, the 2 yr Gilt yield is up by 10 bps and the 10 yr is higher by 17 bps. The euro is back above $1.14 where a close here would be the highest since May 2016 and it’s not just against the euro that the Dollar trades terribly as know. The pound is rising to just below $1.30 and look at the Canadian $ move higher yesterday. Anyway, the Euro STOXX 600 index is down almost 1% notwithstanding the strong performance of European bank stocks. The US 10 yr yield is getting dragged higher for a 3rd day and is back to 2.25%, yesterday’s intraday high.
The Economic Confidence index in the Euro area in June improved to 111.1 from 109.2 in May and that was 1.6 pts better than expected. It’s at the best level since August 2007. Each of the components on manufacturing, services, consumer, retail and construction were higher m/o/m. All the more reason for the ECB to further cut back on QE. We see German June CPI at 8am est and the regional readings we’ve seen so far this morning are flat to higher y/o/y vs May. German consumer confidence rose to the best level since the GFK read began in 2005.
Continuing the pace of uneven Japanese economic data where the corporate sector is doing better than the consumer, retail sales fell 1.6% m/o/m, worse than the estimate of down 1%. Still anemic wage growth is the main reason and why the BoJ should rid themselves of their obsession with 2% inflation. The lack of inflation is not the reason why they don’t have faster growth, it is just a symptom of the state of business activity where they actually have true price stability. Also, does the BoJ ask themselves what will happen to Japanese interest rates if they actually do achieve 2% on a sustainable basis? Does the ECB, Fed, BoE and others wonder too?