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Jobless Claims: More Good News

Takeaway: Labor market data is getting better as this week's claims numbers mark a continuation of the positive news that began last week.

Editor's Note: This research note was originally published April 3, 2014 at 10:20 a.m. by Hedgeye’s Financials team Jonathan Casteleyn & Josh Steiner. Follow Jonathan & Josh on Twitter @HedgeyeJC and @HedgeyeFIG.

Labor Market Tailwinds

Today's initial jobless claims data is positive and marks a continuation of the positive inflection in labor market data seen last week, bringing the new trend to two weeks. As a reminder, we focus on the year-over-year rate of change in the rolling, non-seasonally adjusted data. This week, claims were lower by 8.0% year-over-year, which is better versus the prior week's 7.1% improvement year-over-year.

 

Jobless Claims: More Good News - Lego work people 004 
 

More importantly, the trend had been deteriorating in the year-to-date period until the inflection two weeks ago. We've now seen positive data for two weeks in a row, which matters because we think it may shed some light on the ongoing debate about what role weather may or may not be playing in the economic data.  

 

As we said last week:

One of the arguments put forward in support of the generally weak 1QTD data has been weather. If weather is playing a role in suppressing the strength of the data then one would expect that as we move from the winter to the spring months we could reasonably expect to see improvement in the data. The next few weeks of data should be important in this regard, as they may serve to answer this fundamental question. 

The Data

Prior to revision, initial jobless claims rose 15k to 326k from 311k week-over-week, as the prior week's number was revised down by -1k to 310k.

 

The headline (unrevised) number shows claims were higher by 16k week-over-week. Meanwhile, the 4-week rolling average of seasonally-adjusted claims rose 0.5k week-over-week to 318k.

 

The 4-week rolling average of NSA claims, which we consider a more accurate representation of the underlying labor market trend, was -8.0% lower year-over-year, which is a sequential improvement versus the previous week's year-over-year change of -7.1%

 

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INITIAL CLAIMS & ISM: THE BOUNCE

This morning’s initial claims data showed a second week of strong improvement while both the ISM Services reading and the final Markit Composite PMI rose +1.5 pts MoM in March. 

 

As we’ve highlighted, sequential improvement in the reported March/April domestic macro data should be the base expectation – indeed, the surprise would be if we didn’t see a quasi-meaningful bounce off the weather distorted jan/feb figures.   

 

So, unsurprisingly, the March ISM data showed sequential improvement but the magnitude of the bounce in Headline ISM services (or Monday's Mfg data) wasn’t overly compelling.  The Business Employment sub-index gained +6.1pts in March, but failed to re-trace the -8.9 drop the month prior. 

 

Similarly, New Orders advanced +2.1pts MoM but the Trend in New Orders across both the Services and Manufacturing survey’s remains one of discrete deceleration. 

 

Further, the Business Activity and Backlog indices actually declined MoM while prices paid jumped +4.6 to 58.3.

 

Of course, from a policy perspective – where the path of least resistance is to continue to step down the pace of QE - even an optical recovery in the reported economic data should support the prevailing policy stance. 

 

From a positioning perspective, while we’ve remained constrained in our intermediate-term growth outlook, tactically, we have been positioned net long in real-time alerts since the 1842 oversold signal in the SPX (see  Oversold, Again: SP500 from march 19th).    

 

To really pivot on our intermediate term view, we’d like to see the fundamental data recapture the slope of growth we saw in June-Sept/Oct of last year alongside a breakout in the dollar (Trend resistance = 81.19) and 10Y yields (2.81%) and move towards lower highs/lower lows in the VIX. 

 

Until the collective fundamental and price signals confirm, the game plan of the last two months remains the same - we’ll simply continue to manage exposure within the risk of the immediate-term range.     

 

Below is the detailed breakdown of this morning's claims data from the Hedgeye Financials team led by Joshua Steiner. If you would like to setup a call with Josh or Jonathan or trial their research, please contact 

 

 

- Hedgeye Macro

 

 

INITIAL CLAIMS & ISM:  THE BOUNCE - ISM New Orders

 

INITIAL CLAIMS & ISM:  THE BOUNCE - ISM Employment

 

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INITIAL CLAIMS:  Labor Market Tailwinds

Today's initial jobless claims data is positive and marks a continuation of the positive inflection in labor market data seen last week, bringing the new trend to two weeks. As a reminder, we focus on the year-over-year rate of change in the rolling, non-seasonally adjusted data. This week, claims were lower by 8.0% y/y, which is better vs the prior week's 7.1% improvement y/y. More importantly, the trend had been deteriorating in the YTD period until the inflection two weeks ago. We've now seen positive data for two weeks in a row, which matters because we it may shed some light on the ongoing debate about what role weather may or may not be playing in the economic data.  

 

As we said last week:

One of the arguments put forward in support of the generally weak 1QTD data has been weather. If weather is playing a role in suppressing the strength of the data then one would expect that as we move from the winter to the spring months we could reasonably expect to see improvement in the data. The next few weeks of data should be important in this regard, as they may serve to answer this fundamental question. 

 

The Data

Prior to revision, initial jobless claims rose 15k to 326k from 311k WoW, as the prior week's number was revised down by -1k to 310k.

 

The headline (unrevised) number shows claims were higher by 16k WoW. Meanwhile, the 4-week rolling average of seasonally-adjusted claims rose 0.5k WoW to 318k.

 

The 4-week rolling average of NSA claims, which we consider a more accurate representation of the underlying labor market trend, was -8.0% lower YoY, which is a sequential improvement versus the previous week's YoY change of -7.1%

 

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Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT


MACAU MARCH DETAIL

Overall, March in Macau was a pretty good month, despite the deceleration from January/February.  The comparison was indeed difficult but March still eked out a 13% gain, slightly ahead of what we projected going into the month.  Mass led the way, up 40%.   

 

 

Market

  • VIP revenues grew only 3% but the hold comparison was difficult
  • Rolling chip volume grew 12%
  • Hold percentage was normal although below last year
  • Adjusting for hold in both months, GGR would’ve grown 20% YoY
  • No slowdown in the Mass juggernaut, up 40%

 

LVS

  • LVS grew GGR by 19%
  • Hold was slightly above normal but below last year
  • Market share was in line with recent trend

 

WYNN

  • Market share was above trend but hold related
  • Wynn’s hold was significantly above normal but still below last year
  • While YoY Mass growth was last in the market, it was still up 15% YoY
  • Mass share dipped to 6.9%, well below recent trend

 

MPEL

  • Mass share fell to its lowest level in a year
  • Rolling Chip share was in line with recent trends
  • Hold percentage was normal but well above last year
  • GGR growth was only 6%, only SJM grew less

 

MGM

  • MGM grew revenues 18% on higher hold, although hold was still below normal
  • Mass grew 40%, in line with the market
  • Share was in line with recent trends

MACAU MARCH DETAIL - 0

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Emerging Markets Love Janet Yellen

Takeaway: The recent convoluted, “data-dependent” guidance out of the FOMC has been and should continue to be a boon to EM asset prices.

Emerging Markets Love Janet Yellen - yellen 2733852b

 

Don’t look now, but the EM relief rally is happening. We’re not going to spend too much time on the “why” in this note, having already done that 2x last week and in a 72-slide presentation and conference call a little over 1 month ago. Today, we’re content to merely call attention to the weather. It’s sunny outside in EM land.

 

Emerging Markets Love Janet Yellen - 1

NOTE: Please refer to the explanation at the conclusion of this note for color on how these signals are derived and how to incorporate them into your investment process.

Emerging Markets Love Janet Yellen - EM Divergence Monitor

 

This concomitant breakout across EM capital and currency markets and across the capital and currency markets of commodity-producing nations is extremely newsworthy in the context of #GrowthSlowing and systemic risk accelerating in China in 1Q14. We’ve argued this ‘til we were blue in the face over the past 12-18 months, but if you didn’t know that Chinese demand was NOT the primary factor in determining asset prices in these markets, now you know.

 

In reviewing the March 19 FOMC statement and Janet Yellen’s recent commentary around the FOMC’s intention to: A) become incrementally more data dependent; and B) keep interest rates well below what they consider appropriate, at every step of the way, for the foreseeable future, one has to come to the conclusion that the Fed is less hawkish on the margin – despite the fact that the board continues to actively and rhetorically support tapering.

 

We think the market, at least marginally, is starting to sniff out what we’ve been communicating ad nauseam throughout the year-to-date: both the Fed and the Street are likely to be surprised to the downside with respect to GDP growth and that catalyst is likely to cause the former entity to decelerate the pace of tightening and/or pursue a strategy of outright monetary easing at some point over the intermediate term. That measure can take on various forms – including dovish rate guidance and general ambiguity (vs. communicating a clear path of tightening) – which is exactly what we’ve seen in recent weeks.  

 

Emerging Markets Love Janet Yellen - 3

 

Emerging Markets Love Janet Yellen - 4

 

Emerging Markets Love Janet Yellen - UNITED STATES

 

It’s worth noting that the Bloomberg consensus 2014 real GDP forecast has come in -20 basis points since an early-March peak of +2.9%. We already expect 2014E to come in toward the low end of our forecast range, so once again consensus is playing catch up to our preexisting expectations for domestic economic growth – this time in the opposite direction (recall that we were the growth bulls in 2013).

 

Emerging Markets Love Janet Yellen - 6

 

At some point, we expect consensus to start playing catch up to our preexisting expectations for the slope of US monetary policy. Until a marginally dovish Fed (versus expectations) is fully priced in, we reckon you can continue to go bargain hunting across the spectrum of bombed-out EM assets. That sure beats the heck out of buying the dip in a bubbly social media stock at these ridiculous valuations!

ADDITIONAL NOTE

TACRM Volatility-Adjusted Multi-Duration Momentum Indicator (VAMDMI):

TACRM™ is specifically designed to provide tactical security selection, general global macro market color and suggested dynamic asset allocation weightings. One of the ways it does this is by providing a standardized measure of momentum across various asset classes and systematically making sense of those signals.

 

This VAMDMI score is derived by calculating three independent z-scores of closing price data on a weekly basis and then calculating the arithmetic mean of this sample.

  • Short-term z-score: 1-3 month sample
  • Intermediate-term z-score: 3-6 month sample
  • Long-term z-score: 6-12 month sample

Each independent sample size is determined dynamically by prevailing trends in global macro volatility. Specifically, if the BofA Global Financial Stress Index is making lower-lows on an intermediate-term basis, then each of the sample sizes are larger in duration; if the BofA Global Financial Stress Index is making higher-lows on an intermediate-term basis, then each of the sample sizes are smaller in duration.

 

The momentum signaling indicator chart we highlight above generates a signal(s) when a particular market(s) crosses a critical quantitative threshold after having been above/below that level for at least 3 months:

 

Emerging Markets Love Janet Yellen - 7

 

Editor's Note: This research note was originally published April 1, 2014 by Hedgeye’s Macro Analyst Darius Dale. Follow Darius on Twitter @HedgeyeDDale

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INITIAL CLAIMS: MORE GOOD NEWS

Takeaway: Labor market data is getting better as this week's claims numbers mark a continuation of the positive news that began last week.

Labor Market Tailwinds

Today's initial jobless claims data is positive and marks a continuation of the positive inflection in labor market data seen last week, bringing the new trend to two weeks. As a reminder, we focus on the year-over-year rate of change in the rolling, non-seasonally adjusted data. This week, claims were lower by 8.0% y/y, which is better vs the prior week's 7.1% improvement y/y. More importantly, the trend had been deteriorating in the YTD period until the inflection two weeks ago. We've now seen positive data for two weeks in a row, which matters because we it may shed some light on the ongoing debate about what role weather may or may not be playing in the economic data.  

 

As we said last week:

One of the arguments put forward in support of the generally weak 1QTD data has been weather. If weather is playing a role in suppressing the strength of the data then one would expect that as we move from the winter to the spring months we could reasonably expect to see improvement in the data. The next few weeks of data should be important in this regard, as they may serve to answer this fundamental question. 

 

As a reminder, one of our favorite intermediate-term trade ideas on the long side remains Capital One (COF). We initiated that call in late January on the basis that seemingly every year Cap One misses 4Q and crushes 1Q. We argued for buying it post the 4Q wash-out, holding it through 1Q14 results and exiting ahead of 2Q results. The claims data this morning adds further support to that call. Almost all new loss content comes from newly unemployed people with the balance coming from divorce and illness (major medical expenses). Unsecured lenders like Capital One are hugely correlated with initial claims data, and claims tend to lead the fundamentals by ~13 weeks giving some visibility into what's coming down the pike. 

 

The Data

Prior to revision, initial jobless claims rose 15k to 326k from 311k WoW, as the prior week's number was revised down by -1k to 310k.

 

The headline (unrevised) number shows claims were higher by 16k WoW. Meanwhile, the 4-week rolling average of seasonally-adjusted claims rose 0.5k WoW to 318k.

 

The 4-week rolling average of NSA claims, which we consider a more accurate representation of the underlying labor market trend, was -8.0% lower YoY, which is a sequential improvement versus the previous week's YoY change of -7.1%

 

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Yield Spreads

The 2-10 spread rose 10 basis points WoW to 235 bps. 1Q14TD, the 2-10 spread is averaging 239 bps, which is lower by -2 bps relative to 4Q13.

 

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Joshua Steiner, CFA

 

Jonathan Casteleyn, CFA, CMT

 


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