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Initial Claims Fall 40k, Retracing Nearly All of Last Week's Spike

The headline initial claims number fell 40k WoW to 434k (44k after a 4k upward revision to last week’s data).  Rolling claims rose 4.5k to 437k. On a non-seasonally-adjusted basis, reported claims fell 19k WoW.

The takeaway from this morning's data is that rolling jobless claims are now up for the past 10 weeks, and even more importantly we remain now at the YTD high in rolling claims. We use claims as our primary frequency determinant in thinking about losses for the consumer book of balance sheet dependent financials. The last time we saw such an inflection in the trend in jobless claims was summer 2010, a period in which the XLF lost roughly 20% of its value. Given the XLF is only modestly off its recent highs, we would be cautious given this continuing development on the jobs front. To this end, take a look at our fifth chart showing the overlay of jobless claims with S&P 500. The current divergence is among the widest we've seen in the last few years suggesting that either the market is due for a significant correction in the near-term or claims should fall precipitously in the next few weeks.

ROLLING INITIAL CLAIMS MAKE NEW YTD HIGHS - rolling

ROLLING INITIAL CLAIMS MAKE NEW YTD HIGHS - reported

ROLLING INITIAL CLAIMS MAKE NEW YTD HIGHS - NSA claims

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. 

ROLLING INITIAL CLAIMS MAKE NEW YTD HIGHS - Fed and

 

ROLLING INITIAL CLAIMS MAKE NEW YTD HIGHS - S P

 

Yield Curve Remains Wide

We chart the 2-10 spread as a proxy for NIM. Thus far the spread in 2Q is tracking 7 bps tighter than 1Q.  The current level of 262 bps is 2 bps tighter than last week.

ROLLING INITIAL CLAIMS MAKE NEW YTD HIGHS - spreads

ROLLING INITIAL CLAIMS MAKE NEW YTD HIGHS - spreads QoQ

Financial Subsector Performance

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

ROLLING INITIAL CLAIMS MAKE NEW YTD HIGHS - perf

Joshua Steiner, CFA

Allison Kaptur