Jobless Claims Increased Lower Than Expected

As investors continue to digest the Fed’s latest interest rate hike and ratcheting up of its dot-plot expectations going forward, we see new jobless claims figures this morning, along with a new print on the current account balance for Q2. We’re also seeing a response to the Fed’s actions overseas, with interest rate hikes at the Bank of England, Norway, Indonesia and Switzerland. Even the Bank of Japan has intervened and bought yen on the foreign exchange market — for the first time in nearly a quarter-century.

We’re currently living through “interesting times” (which is actually an old Chinese curse) in the global economy, with plates shifting in real time to bring down inflation in the U.S. while Europe and elsewhere face a more immediate recession. Bond yields on 2-year Treasuries have at last crossed 4% to 4.07% this morning, and creating the widest yield-curve inversion from 10-year bond yields in 40 years: 52 basis points from the 10-year’s 3.55%.

Initial Jobless Claims for last week came in lower than expected to 213K, up 5000 claims from the steep downward revision the previous week. Meanwhile, Continuing Claims tumbled to their lowest levels since mid-July: 1.38 million, from the previous week’s 1.40 million. Continuing Claims are reported a week behind Initial Claims, so we might expect longer-term jobless claims at these lower levels in next week’s report, as well.

Normally, these would automatically be considered good or very good news for market participants, but remember: we’re living in “interesting times.” These days, if we want to see the Fed relax their talons on interest rates in the foreseeable future, we’re going to need to see the labor market show signs of strain, not slack. Historically low jobless claims like the ones we see this morning actually aggravate the current situation, or at least will keep encouraging the Fed to tighten interest rates at its current clip (three straight meetings have brought us 75 bps hikes for the first time in… uh, apparently a really long time).

The Q2 Current Account Deficit, which is more comprehensive than most other trade reports, struck a headline number of -$251 billion, -4.0% month over month. This is obviously a big number, but notably down from -$282 billion reported previously, which was the deepest deficit on record, as well as the -$260 billion estimate. Both Imports and Exports grew in the quarter, to $850 billion and $540 billion, respectively.

Following a post-Fed selloff yesterday afternoon, following the interest rate increase and Fed Chair Powell calmly reiterating the committee’s determination to bring down inflation. Powell was agnostic on whether or not these actions will eventually result in recession, and the market hates uncertainty. However, after the release of this new data ahead of today’s opening bell, the major indices went from flattish to decided positive: +100 points on the Dow and +10 points on both the Nasdaq and S&P 500.

The pig is in the python, so to speak. What we need to watch is how the thing gets digested.

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