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Bonds: Jobs Off, Risk On?

If we examine the correlation between the 10-Year US Treasury and 4-week Rolling NSA Initial Jobless Claims on a year-over-year basis, you'll find that as the labor market deteriorates to some degree, investors are keeping their cool and not fleeing to Treasuries as a safe haven play. Conversely, investors seem to be confident that the bull run in the US equity market will continue despite weakness in yesterday's ADP report and this morning's jobless claims numbers. The 10-year yield hit a two-month low earlier this morning at 1.823% before rising back above 1.826%.

 

Bonds: Jobs Off, Risk On? - 753981515


Downside Pressure On The Euro

Europe's slew of problems include the uncertainty surrounding Italy's next government, the fallout from the Cyprus banking crisis and scares over Slovenia being the next nation that will need an ECB-backed bailout. Our critical quantitative lines on the EUR/USD are outlined in the chart below. Beyond immediate term TRADE support of $1.27 we do not see any meaningful support until around $1.22. April will be a challenging month for the European Union as it struggles to keep itself together.

 

Downside Pressure On The Euro - ww. eurusd


Slowdown In The Labor Market?

This morning's weak seasonally adjusted initial jobless claims number should come as no surprise after yesterday's equally abysmal ADP report. Last month, Hedgeye Financials Sector Head Josh Steiner noted that the labor market's seasonal adjustments would shift from a tailwind into a headwind at the beginning of April; we are now beginning to witness the change first hand.

 

 

Slowdown In The Labor Market? - 1

 

 

Some would blame the "Easter effect" and spring break for the stagnant job growth and four-month high in jobless claims. While a fair argument, the bigger picture shows that the labor market is not as bad as it would appear to be on the surface of things. Yes, there is a cool down occurring right now but history shows that this happens during April every year. The 4-week rolling average of NSA claims, which we consider a more accurate representation of the underlying labor market trend, was -3.8% lower year-over-year, which is a sequential deterioration versus the previous week's year-over-year change of -5.9%.

 

Slowdown In The Labor Market? - 2

 

Slowdown In The Labor Market? - 3

 

Slowdown In The Labor Market? - 4


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April ECB Presser: Tight Credit Conditions Persist

Today’s ECB press conference was largely non-eventful.  Rates were left unchanged, Draghi reiterated that the economic outlook remains weak, inflation expectations are anchored, and credit conditions remain tight. Below we show a chart of the weakening credit lines to households and corporations, which should continue to hamper real growth.

 

April ECB Presser: Tight Credit Conditions Persist - ww. ecb loans

 

Click here to read Draghi’s prepared remarks.

 

There were many questions on Cyprus in the Q&A. Draghi was quick to state that the Cyprus levy is no template for the Eurozone (and acknowledged that Eurogroup head Jeroen Dijsselbloem misspoke on the topic), and that the original ECB proposals for a Cyprus bailout/in did not include a levy.

 

As we discussed yesterday in a post titled “ECB on Hold; EUR Pressured; Slovenia Scares” we think that the uncertainty around the next Italian government, the tail of Cyprus, recent scares over Slovenia as the next country in need of a bailout, and the ECB keeping the interest rate on hold will put downside pressure on the EUR/USD.

 

Our critical quantitative lines on the EUR/USD are outline in the chart below. Beyond immediate term TRADE support of $1.27 we do not see any meaningful support until around $1.22.

 

April ECB Presser: Tight Credit Conditions Persist - ww. eurusd

 

Matthew Hedrick

Senior Analyst


Stimulus: Big In Japan

Following in the footsteps of the Federal Reserve post-2008 financial crisis, the Bank of Japan announced overnight that it would inject $1.4 trillion into the economy over the next two years as a stimulus measure. As a result, the Japanese Yen took a nose dive as the currency is debauched even further and stocks around the globe, including the Nikkei 225 and S&P 500, rose considerably on the news.

 

Stimulus: Big In Japan - NIKKEISPY

 

As you can see in the chart above, the Nikkei 225 has ripped to the upside, posting a +5.2% gain in the last two days alone. Insider buying and selling is inevitable but any kind of easing program put into place by Japan's central bank is bound to make waves in the stock market.


Morning Reads From Our Sector Heads

Howard Penney (Restaurants):

 

Panera testing donation-based menu item (via Nation's Restaurant News)

 

Brian McGough (Retail):

 

Lululemon Dispatches Employees to Overhaul Offshore Production (via Sports One Source)

 

Kevin Kaiser (Energy):

 

Midstates Petroleum to Acquire Oil-Weighted Properties in the Western Anadarko Basin in Oklahoma and Texas (via Midstates Petroleum)

 

Peyto Exploration and Development Corp. President's Monthly Report (via Peyto)

 

Josh Steiner (Financials):

 

Bond Traders Club Loses Cachet in Most Important Market (via Bloomberg)

 

Fed’s Williams: Bond Purchases May Be Tapered by This Summer (via WSJ)

 

Government Watchdog Faults Regulators Over Foreclosure Review (via NYT Dealbook)

 

 

 


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