INITIAL CLAIMS: FINALLY, A MISFIRE

Takeaway: It was starting to look like labor and housing data could do no wrong. This morning serves as a wake-up call on both fronts.

Taking a Breather

This morning's headline print for initial jobless claims is clearly weak and the non-seasonally adjusted (NSA) data was weak too, on a one-week basis. This is likely to take the short-term wind out of the sails for Financials, especially when combined with the also lackluster housing starts print this morning. 

 

We have subscribed to a simple philosophy since Lehman Brothers. We consider three macro factors paramount in gauging the overall direction for the sector: labor, housing and the Fed. On that score, YTD all three factors have been moving in the right direction.We continue to view labor and housing as moving in the right direction from an intermediate and longer-term standpoint, and the Fed is unlikely to go anywhere in light of this morning's lukewarm numbers. In the short-term, however, we would expect some weakness. 

 

Contrary to the prior three years, however, where it was unclear whether the weakness constituted a falling knife or buying opportunity, this time around, we would view any weakness as a buying opportunity for those with a horizon beyond a few weeks.

 

Importantly, the rolling NSA data continues to improve YoY at a better-than-expected clip of 8.9%. While that's a sequential deceleration vs. the previous week, it's still a very good rate of improvement.  

 

The Data

Prior to revision, initial jobless claims rose 37k to 360k from 323k WoW, as the prior week's number was revised up by 5k to 328k.

 

The headline (unrevised) number shows claims were higher by 32k WoW. Meanwhile, the 4-week rolling average of seasonally-adjusted claims rose 1.25k WoW to 339.25k.

 

The 4-week rolling average of NSA claims, which we consider a more accurate representation of the underlying labor market trend, was -8.9% lower YoY, which is a sequential deterioration versus the previous week's YoY change of -9.0%

 

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Yield Spreads

The 2-10 spread rose 14.5 basis points WoW to 170 bps. 2Q13TD, the 2-10 spread is averaging 153 bps, which is lower by -14 bps relative to 1Q13.

 

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