August 5th, 2010 1:02 PM by Lehel S.
Treasuries and mortgages doing better this morning on weekly jobless claims data at 8:30. The stock indexes weaker. Weekly jobless claims were expected to be down 2K, as reported they increased 19K to 479K the highest weekly claims since April 10th; continuing claims did however decline slightly to 4.537 mil frm 4.565 mil last week. The claims increase continues to refute the view that employers are starting to hire, yesterday we had to suffer the comments that small business was beginning to hire, one of the more absurd arguments we have had to listen to this year. Small businesses are not hiring, although according to ADP that sector increased payrolls by 21K in July-----21K? amazing how the media and some of the wishful economic bulls can make anything out of that.
This morning's claims will have no impact on what markets are thinking about tomorrow's July employment data as it is data that isn't included in the July employment stats. The estimate for non-farm payrolls tomorrow is a decline of 70K jobs BUT economists are saying 100K new private sector jobs were created. The end of the census workers contributed to the overall decline. Our take is private jobs did not grow by 100K, more likely about 20K at most. The unemployment rate is expected to increase to 9.6% frm 9.5% in June. The real unemployment rate however, remains over 16% when the reality of discouraged workers that have dropped out of looking for a job and workers that are very underemployed.
There is nothing left today but watching the equity market and its influence on the bond and mortgage markets. At 9:30 the DJIA opened down 50, the 10 yr note rallying on weekly claims was back to 2.91% and mortgage prices +7/32 (.22 bp). As expected Monday the rate markets have been choppy this week with no changes since last Friday's closes. The key 10 yr note still resists cracking 2.88%, every attempt is thwarted, eventually however, it will fall with another leg lower in long term rates. Tomorrow's employment data will likely be disappointing to markets if our outlook proves correct. It really doesn't matter how low rates will fall as far as the housing sector; interest rate levels are not a factor n the depressed housing markets.
Overnight the ECB, as expected, left its base lending rate unchanged. European Central Bank President Jean- Claude Trichet said the euro-area economy is strengthening faster than forecast and money markets are improving as the region recovers from its sovereign debt crisis. “The available data for the third quarter are better than expected,” Trichet told reporters in Frankfurt today after the ECB’s Governing Council set its benchmark rate at a record low of 1 percent. “The market is functioning a little bit better.” The ECB’s main rate is still “appropriate,” he said, indicating officials see no immediate need to tighten policy.
July chain store sales, widely expected to be strong, were a little disappointing. Where we would have expected strong sales, sales did not meet estimates for some high end retailers like Nordstrom's.