Jobless Claims, Waiting on Congress, Overseas Data

Initial jobless claims totaled 258k, well above the estimate of 240k and a jump from the 243k seen last week. Smoothing out the weekly volatility in the data puts the 4 week average to 240k from 239k last week and 240k in the week prior. Continuing claims, delayed by a week, fell by 39k after a 30k person drop in the week prior. Bottom line, the highest claims level in two months doesn’t bother me yet but is worth acknowledging after the small prints seen in the past 7 weeks. Companies are optimistic on the economy as seen in the confidence figures and when combined with the difficulty in finding good workers, it’s easy to see why they are holding on to their employees. We do though now need to see data that translates this optimism into actual improvements in activity. The economic crosscurrents are still clearly evident.

The market has framed the House vote today as a binary event but even if it passes it has little chance of passing the Senate in its current form and that is when the real back and forth begins. That said, a yes vote from the House is an obvious good start if it happens both for the healthcare system itself and it’s the obvious major step that gets us closer to the hoped for tax overhaul that I continue to believe has been the biggest reason why we’ve rallied so dramatically post election.

A week before ECB QE is trimmed by 25%, the ECB offered its last (for now) bout of free money to banks via the TLTRO-2 today. The cash grab that doesn’t have to be given back for four years totaled 233.5b euros, about double the median estimate of 110b euros and compares with the take of 62.2b in December, 45b in September and 399b back in June. While we don’t know for sure what banks will do with the money, I’m sure many assumed much, if not all, of the ECB accommodation currently going on will end before this 4 yr period matures. Taking no responsibility for the challenged profitability of the banking system due to negative interest rates and a yield curve that is essentially broken, Mario Draghi in their annual regulatory report released today blamed instead that “overcapacities, inefficiencies and legacy assets contribute to banks’ low profitability. It is up to the banks themselves to find appropriate answers to these challenges. And for the sake of a strong recovery in the euro area, they must do so quickly.” The Euro STOXX bank stock index is higher by .4% in response but is still down on the week. The euro is little changed at a hair below $1.08 which I believe continues to catch a bid due to the ECB reduction in easing.

After a few months of weakness, UK retail sales ex auto fuel rose 1.3% m/o/m in February which was above the estimate of up .3%. These are volume metrics which takes out the influence of price inflation. The figure by value was higher by 1.7% ex fuel. While the sales rebound was good to see in light of the purchasing power squeeze the UK consumer is currently experiencing, for the 3 months ended February, sales are down 1.1% y/o/y ex fuel, the biggest fall since 2010. The BoE is stuck between their sole price stability mandate where QE and a benchmark rate of .25% is completely disconnected from where inflation is running and their fear over the behavior of the UK economy in response to Brexit. I say, don’t damage the standard of living and purchasing power of UK citizens and have more faith that UK industry will manage just fine. On the better than expected sales number, the pound is back above $1.25 (one month high vs the dollar) and why the FTSE 100 is underperforming other European bourses and gilt yields are higher across their yield curve.

With the upcoming French election being the obvious focus, the March business confidence in France index was 104 as expected vs 105 last month and 104 back in January. This is 2 pts off the best level since 2011 but still remains well below the peak print of 115 back in 2007. The election is Macron’s to win and I read a story this morning that no French bank will lend money to Marine Le Pen’s campaign. She’s trying to get a loan from a foreign bank. This from a candidate that is not a fan of immigration. Isn’t it ironic, don’t ya think?

I’ve said many times that the AAII measure of individual stock market sentiment is so volatile week to week (an EKG after drinking Red Bull) that it should be rendered almost useless in gauging psychology. As evidence, over the past 4 weeks Bears rose 3.3 pts on March 2nd, 11 pts the following week, then fell 8 pts last week and another 8 this past week to 30.5. Bulls today totaled 35.3 vs 31.2 last week, 30 the week before and 38 in the week prior. I prefer the II data.

As to be expected, Janet Yellen said nothing on the US economy and monetary policy at a Fed community development conference