Jobless Claims, Import Prices, 30 yr Auction

Initial jobless claims totaled 266k, about in line with the estimate of 265k and vs 267k last week which was revised down by 2k. The 4 week average did rise to 263k from 260k as a print of 254k dropped out of the average. Continuing claims, delayed by one week, rose by 14k. Bottom line, this weekly data point remains a broken record in a good way in that the pace of firing’s remains muted. This is also not inconsistent with the slowing pace of job gains as we approach the 8^th year of this expansion and there are less available bodies to hire.

Import prices in July surprised to the upside by .1% m/o/m vs the estimate of down .4%. Also, June was revised to a jump of .6%, 4 tenths more than the first print. On a y/o/y basis, the decline was still 3.7% but that is the least since November 2014 as the commodity/oil comparison gets easier. Prices ex petro were down by 1.3%, the least since January ’15. Bottom line, with the dollar no longer rallying and commodity prices no longer going down, import prices should continue to trend up on a rate of change basis. For many meetings, the Fed has cited “declines in non energy imports” as one of the reasons that inflation is running below their 2% objective (because they look at PCE and not CPI) and that worm is now turning.

After a pretty good 10 yr note auction yesterday, the 30 yr bond auction today wasn’t as good and mostly uneventful. The yield of 2.274% was about in line with the when issued but the bid to cover of 2.24 was below the previous one year average of 2.36. Dealers got stuck with 28% of the auction, about the same level of 29% averaged in the previous 12.

Bottom line, with the influence of insurance companies and pension funds in the very long end of the curve, it’s always not easy gauging the reason for the buying but yields continue higher post results. The long bond is down more than a full point today with the yield up 5 bps and the 10 yr yield is up by the same amount to 1.55%. The question remains and what should be the key focus of us all is whether the post UK vote rally in bonds and plunge in yields was the blow off rally in sovereign bonds. I bring this possibility up again just because of what’s happened in the JGB market over the past few weeks. Don’t go to bed at night without catching a glimpse of the JGB market as if there is a canary out there, that is where it will be. Also, with the cost of hedging out FX risk now being expensive, don’t rely anymore on a flood of foreigners trying to pick up a few bps of yield in US Treasuries. Unless of course they are willing to take the FX risk. For those that did in Japan who received about 1.9% on average over the past year in the US 10 yr, they gave back 20% on the yen rally.