The Fed’s innovative and, thus far, enigmatic “communication tool” continues to propagate both investor uncertainty and asset volatility as speculative handicapping of every domestic macro data point on prospective policy adjustment timing is back to serving as the prevailing driver of daily price action.
The dollar is up and treasury yields are both higher in today’s iteration as the Chicago PMI surged to its highest level since March 2011 and initial claims declined modestly.
Bloomberg’s weekly reading of consumer confidence, meanwhile, declined again sequentially as the hangover in confidence stemming from the Gov’t shutdown continues to manifest across the preponderance of age and income demographics.
With the immediate term correlation between the dollar and equities strongly inverse at -0.86, stocks are red this morning on stronger data. However, we continue to view the combination of #StrongDollar + #RatesRising as a pro-growth signal and are looking for a sustained return to that dynamic (which characterized much of the YTD) to stay bullish on U.S. growth prospects over the intermediate term.
This morning’s initial jobless claims numbers aren’t adding any clarity to the macro picture as residual noise from California continues to complicate a clear discernment of the underlying Trend in the domestic labor market. We should have improved clarity come next week.
- Hedgeye Macro
Processing, Processing, ...
The labor market appears to have lost a step in the latest week, but conflicting reports over whether California's tech issues are finally out of the data make it hard to state definitively what is happening. The year-over-year rate of improvement in non-seasonally adjusted initial jobless claims slowed to 6.6% from 9.8% in the prior week. The state level California data, which is only available on a 1-week lag, is showing that CA claims were still running above the prior year level by ~15k. Assuming this 15k was still present in the data in the current week it would significantly alter the conclusion, as the data would instead appear to be resuming its pre-California/Govt shutdown run-rate. We expect greater clarity in the week ahead as we'll be able to see next week whether California's level of claims for this week were distorted.
Nuts & Bolts
Seasonally adjusted initial jobless claims fell 10k to 340k WoW and there was no revision to the prior week's data. Meanwhile, the 4-week rolling average of seasonally-adjusted claims rose 8k WoW to 355.25k.
The 4-week rolling average of NSA claims, which we consider a more accurate representation of the underlying labor market trend, was lower by 3.8% YoY, which is a sequential deterioration versus the previous week's YoY change of -5.8%
Joshua Steiner, CFA
Jonathan Casteleyn, CFA, CMT