Two More Months of Worsening Data to Go
Initial jobless claims rose 13k last week to 383k. As usual, the prior week print was upwardly revised - this time by 3k. Incorporating the 3k upward revision to last week's print, claims were higher by 10k. Rolling claims also increased, rising 3.75k to 375k. On a non-seasonally adjusted basis, claims rose 11k to 341k.
This week's number was well short of expectations for 370k, and, taken in conjunction with a weaker than expected ADP report this morning, continues to point to a perception that the jobs recovery is stumbling. As we've pointed out many times, this is an illusion caused by faulty seasonal adjustment factors in the government data. The error traces back to Lehman's bankruptcy. This is a major component of why the financials have followed a recurring trading pattern for the last three years, and why they should continue to for the next two years until the five-year lookback period has run its course.
The better way to evaluate the data is to look at the year-over-year trend in rolling NSA claims to remove the effects of the seasonal distortions. When viewed this way, claims continue to improve at a rate of ~11% YoY.
Meanwhile, the Yield Curve Continues to Pancake
The 2-10 spread tightened 10 bps versus last week to 135 bps as of yesterday. The ten-year bond yield decreased 11 bps to 162 bps. To put this in perspective, if spreads hold where they are now, the 3Q12 sequential change will rival what we saw in 3Q11 when banks across the board saw their margins flatten. It remains to be seen whether the end of Operation Twist on June 30 will take some pressure off the long end of the curve.
Financial Subsector Performance
The table below shows the stock performance of each Financial subsector over four durations.
Joshua Steiner, CFA
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