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    MARKET EDGES

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Jobless Claims Moving Sideways - No Improvement for Past 8 Weeks

The headline initial claims number fell 9k WoW to 403k (13k after a 4k upward revision to last week’s data).  Rolling claims rose 2.25k to 399k. On a non-seasonally-adjusted basis, reported claims fell 67k WoW, a typical seasonal move. 

We have been looking for claims in the 375-400k range as the level that can begin to bring unemployment down.  If this level is held, we expect to see unemployment improve. We consider unemployment to be ~200 bps higher than the headline rate due to decreases in the labor force participation rate. In other words, if the labor force participation rate were at the long-term average level of the last decade, unemployment rate would be 10.8% rather than 8.8%. So when we say that claims of 375-400k will start to bring down the unemployment rate, we are actually referring to the 10.8% actual rate.

Rolling claims have now trended sideways for the past 8 weeks.  

JOBLESS CLAIMS MOVE SIDEWAYS FOR 8TH WEEK IN A ROW - rolling

JOBLESS CLAIMS MOVE SIDEWAYS FOR 8TH WEEK IN A ROW - raw

JOBLESS CLAIMS MOVE SIDEWAYS FOR 8TH WEEK IN A ROW - nsa

Two relationships that we are watching closely are the tight correlation between the S&P and claims and between Fed purchases (Treasuries & MBS) and claims.  With the end of QE2 looming, to the extent that this relationship is causal, it is quite concerning. 

JOBLESS CLAIMS MOVE SIDEWAYS FOR 8TH WEEK IN A ROW - S P and

 

JOBLESS CLAIMS MOVE SIDEWAYS FOR 8TH WEEK IN A ROW - Fed and

 

Yield Curve Remains Wide

We chart the 2-10 spread as a proxy for NIM. Thus far the spread in 2Q is tracking 4 bps tighter than 1Q.  The current level of 273 bps is flat from than last week.

JOBLESS CLAIMS MOVE SIDEWAYS FOR 8TH WEEK IN A ROW - spreads

JOBLESS CLAIMS MOVE SIDEWAYS FOR 8TH WEEK IN A ROW - spreads QoQ

Financial Subsector Performance

The table below shows the stock performance of each Financial subsector over four durations. 

JOBLESS CLAIMS MOVE SIDEWAYS FOR 8TH WEEK IN A ROW - perf

Joshua Steiner, CFA

Allison Kaptur