- S&P, Dow green; Nasdaq down
- Financials lead S&P sector gainers; tech sole decliner
- STOXX 600 down 1.2%
- Gold, bitcoin lower; oil, dollar ~flat
- 10-yr U.S. Treasury yield ~1.44%
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THURSDAY DATA ASKS: WHAT DO YOU HAVE TO DO TO GET FIRED IN THIS TOWN? (1055 ET/1555 GMT)
Thursday’s one-two data punch drove home the severity of the so-called ‘great resignation,’ in which firings (and workers) are becoming scarcer than the latest X-Box on Christmas Eve.
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The number of U.S. workers filing first-time applications for unemployment benefits (USJOB=ECI) crept up to 222,000 last week, solidly undershooting the 240,000 consensus. read more
The prior week’s surprise dip was revised even lower, to 194,000.
The Labor Department’s report offers further evidence that employers are increasingly disinclined to hand out pink slips amid a tight labor market, the result of booming demand colliding with worker scarcity and low labor market participation.
While this latest weekly claims number – which falls outside the survey period for Friday’s hotly anticipated November employment report – is within the range normally associated with healthy labor market churn, the size of the consensus miss could be cause for concern for markets.
Labor scarcity, combined with stubbornly persistent supply chain constraints, has helped erase the word “transitory” from the Fed’s inflation vocabulary as wages and prices continue to rise, and could very well translate into rate hikes coming sooner and faster than many had hoped. read more
But Ian Shepherdson, chief economist at Pantheon Macroeconomics, sees the participation rate edging higher but the effects of wage inflation are likely to linger.
“The labor market ought to become a bit less tight as participation rises over the next few months,” Shepherdson writes. “But businesses will still be very wary of letting people go unless they have no choice, because re-hiring will be very difficult and/or expensive.
Ongoing claims (USJOBN=ECI), reported on a one-week delay, dropped to 1.956 million, dipping below the 2 million mark for the first time since the pandemic shuttered businesses and brought the global economy to its knees.
Separately, pre-announced firings at U.S. firms plunged 35% in last month to the lowest level in over 28 years.
That news comes courtesy of executive outplacement firm Challenger, Gray & Christmas, whose oft-overlooked planned layoffs report has gained growing scrutiny amid the afore-mentioned worker drought.
November’s 14,875 print was the smallest number of announced firings since May, 1993. Year-to-date, layoffs have plummeted by 87% compared with last year.
“With the Omicron variant emerging and the unknowns that come with its spread, coupled with the ongoing difficulty hiring and retaining workers, it’s no surprise job cuts are at record lows,” said Andrew Challenger, Senior Vice President of Challenger Gray. “Employers are spread thin, planning best- and worst-case scenarios in terms of COVID, while also contending with staff shortages and high demand.”
Market participants now train their gaze on tomorrow’s jobs report, which is expected to show a 550,000 increase in non-farm payrolls and a 0.1 percentage point drop in the unemployment rate to 4.5%.
Wall Street was indecisive in morning trading.
S&P 500 and the Dow were solidly green, but tech kept the Nasdaq near the unchanged mark as investors favored value (.IVX) over growth (.IGX).
THE “UNJUSTIFIABLE” ITALIAN DISCOUNT (1015 ET/1515 GMT)
The Omicron scare has put Milan stocks under intense selling pressure, and the argument has been that tourism-dependent economies like Italy will be hit harder by the restrictive measures put in place to fight the latest infection wave.
The critical question now is whether Italian equities’ recent underperformance is justified or whether that has opened up an opportunity to chip in at a bargain.
Jefferies see a possible over-reaction here for a market that has stronger earnings momentum on the cheap. Italian stocks trade at a 37% valuation discount, the highest in 9 years.
“The recent retracement in share prices due to the Omicron scare has unjustly scarred the Milan index,” they say.
“What has been missed by investors is the simply stunning turn-around in the country’s current account and basic balance of payments. Moreover, there is a palpable ‘feel good factor’ emanating from the data,” they add.
“The Milan bourse is one of the few that we cover that has consistently experienced positive earnings revisions over the past twelve and three months. We remain Bullish,” they conclude.
And Carlo Franchini, head of Institutional Clients at Banca Ifigest in Milan, agrees.
“If we strip the index of the banking component, we are still basically at 2008 levels… GDP is growing at levels not seen in decades, and S&P has revised the outlook for Italy (to positive): I’d say the astral picture is perfect,” he says
“I find the discount at which the MSCI Italy trades versus others is unjustifiable,” he adds.
AS BOND MARKET VOLATILITY RISES, CASH MAY NO LONGER BE TRASH (1000 ET/1500 GMT)
Wild swings in U.S. bond markets are making it more difficult to eke out profits with some trading strategies, and may be increasing the allure of holding cash.
Many large macro funds have been burned by large price swings in U.S. Treasuries as investors adjust for the prospect that the U.S. Federal Reserve will raise rates sooner than previously expected.
Repricing around this prospect has caught many investors offsides and created large daily jumps in short-dated yields, and increasingly choppy trading in longer-dated bonds and the yield curve.
“For the first time in a couple of years…cash has pretty good option value right now,” said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott in Philadelphia.
“Given the degree of fundamental market volatility, the massive positioning swings, what appears to be reduced dealer willingness or ability to warehouse risk, you get some surprisingly sharp moves that are not supported by changes in policy or changes in economic data, and I want to be in a position to take advantage of that. And that’s really where cash’s option value comes from,” LeBas added.
WHICH WAY DO WE GO? (0843 ET/1343 GMT)
U.S. equity index futures were mixed on Thursday, as equities continue to be volatile as a lack of clarity around the severity of the COVID-19 Omicron variant dominates.
Major averages on Wall Street suffered a late session meltdown on Wednesday after the confirmation of the first case in the U.S. and each closed below key technical support levels. read more
Nasdaq futures were pointed to a lower open for the tech-laden index as Apple Inc (AAPL.O) shares were down more than 3% in premarket following a Bloomberg report the company has told parts suppliers demand for its iPhone 13 lineup has slowed. read more
But the price-weighted Dow was looking at a higher open, due in part to a boost from Boeing (BA.N), which rose more than 5% before the opening bell after China’s aviation authority issued an airworthiness directive on the 737 MAX that will help pave the way for the model’s return to service in China after more than two-and-1/2 years. read more
Economic data showed weekly initial jobless claims rose less than expected, while layoffs fell to their lowest since 1993. read more
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Reporting By Sinéad Carew
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