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Takeaway: Claims helped by a missing state, but the trend lower remains in place. Dual tailwinds (claims & housing) remain the key Financials drivers.

Our Take: Initial claims fell 28k last week to 339k (but fell 30k after a 2k upward revision to the prior week's data). Rolling claims fell 11.5k WoW to 364k. On a non-seasonally adjusted basis, claims rose 26k. News reports are indicating that one "large" state was excluded from this week's jobless claims report, explaining much of the WoW improvement. It's inclusion next week should see the series revert higher. That said, claims are still trending lower, driven by the seasonality dynamics we've often highlighted (see first chart below for detail). 

We follow claims and housing closely. Our basic thesis on capital-intensive Financial Services companies is that credit is always the most important swing factor, and the best leading indicators for credit's frequency and severity components are jobless claims (newly unemployed people are what drive new losses) and home prices (this is the primary collateral, hence it's relevance to severity). 

Aside from the seasonality component, which will remain a tailwind through February 2013, we like to cut through the noise by looking at the YoY change in the rolling NSA series. Again, largely attributable to the data anomaly of the missing state, there was a large improvement in YoY rolling NSA. The series improved sequentially from -7.4% to -10.3%. 

JOBLESS CLAIMS: DUAL TAILWINDS FROM FREQUENCY AND SEVERITY - Seasonality

JOBLESS CLAIMS: DUAL TAILWINDS FROM FREQUENCY AND SEVERITY - Raw

 

JOBLESS CLAIMS: DUAL TAILWINDS FROM FREQUENCY AND SEVERITY - Rolling

 

JOBLESS CLAIMS: DUAL TAILWINDS FROM FREQUENCY AND SEVERITY - NSA

 

JOBLESS CLAIMS: DUAL TAILWINDS FROM FREQUENCY AND SEVERITY - NSA rolling

 

JOBLESS CLAIMS: DUAL TAILWINDS FROM FREQUENCY AND SEVERITY - S P

 

JOBLESS CLAIMS: DUAL TAILWINDS FROM FREQUENCY AND SEVERITY - Fed

 

JOBLESS CLAIMS: DUAL TAILWINDS FROM FREQUENCY AND SEVERITY - YoY NSA claims

 

JOBLESS CLAIMS: DUAL TAILWINDS FROM FREQUENCY AND SEVERITY - Recessions

 

JOBLESS CLAIMS: DUAL TAILWINDS FROM FREQUENCY AND SEVERITY - Rolling Linear

Yield Spreads

The 2-10 spread rose 3 bps WoW. 4QTD, the 2-10 spread is averaging 1.43%, which is up 6 bps basis vs 3Q12.  

JOBLESS CLAIMS: DUAL TAILWINDS FROM FREQUENCY AND SEVERITY - 2 10 spread

 

JOBLESS CLAIMS: DUAL TAILWINDS FROM FREQUENCY AND SEVERITY - 2 10 spread QoQ

Financial Subsector Performance

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

JOBLESS CLAIMS: DUAL TAILWINDS FROM FREQUENCY AND SEVERITY - Subsector performance

 

JOBLESS CLAIMS: DUAL TAILWINDS FROM FREQUENCY AND SEVERITY - Companies

 

Joshua Steiner, CFA

Robert Belsky

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