Editor's note: This is a complimentary look at Hedgeye research posted earlier this morning by Financials Analyst Josh Steiner. For more information on how you can become a Hedgeye subscriber click here.
Two Weeks Until Market Gets What's Going On
The initial jobless claims data continues to paint a picture of a strengthening, though not overheating, recovery in the labor market. The most important takeaway that varies from consensus is that the data is sharply at odds with the very weak December Non-Farm Payrolls (NFP) print that caused a rally in long bonds. We expect, based on this claims data, that dynamic to reverse when the January NFP print is released two weeks from tomorrow.
Our preferred measure of looking at the claims data remains the year-over-year rate (Y/Y) of change in the rolling non-seasonally adjusted initial claims. This week that measure was 469,817, which was down 7.9% from the 510,350 at the same time last year. This compares with the previous week's rate of improvement of 8.5%. On the margin, there was modest deceleration in the rate of improvement, but not enough to warrant emphasis. On a single week basis, an inherently more volatile series, the Y/Y change was 5.8% better, which was better than the previous week's 4.3% improvement.
We continue to expect the 10-year treasury to re-test 3.00% on strengthening labor data that will become more apparent in ~2 weeks time.
Prior to revision, initial jobless claims were unchanged at 326k week-over-week (WoW), as the prior week's number was revised down by -1k to 325k.
The headline (unrevised) number shows claims were higher by 1k WoW. Meanwhile, the 4-week rolling average of seasonally-adjusted claims fell -3.75k WoW to 331k.
The 4-week rolling average of NSA claims, which we consider a more accurate representation of the underlying labor market trend, was -7.9% lower YoY, which is a modest sequential deterioration versus the previous week's YoY change of -8.5%.