3 Numbers: U.S. Jobless Claims To Remain Close To 43-Year Low
James Picerno | Oct 13, 2016 06:09AM ET
- US jobless claims expected to tick higher, but continue near multi-decade low
- Expectations for a Fed rate hike continue to raise the 10-year Treasury yield
- Donald Trump’s fading electoral fortunes appear to be lifting the Mexican peso
The US labour market is back in focus today with the weekly update on jobless claims. Meanwhile, the Mexican peso is strengthening in the wake of Donald Trump’s fading prospects for an election victory in November’s US presidential election.
US: Initial Jobless Claims (1230 GMT): Economists are expecting that today’s weekly update on new filings for unemployment benefits will continue to cast a bullish glow over the outlook for the labour market.
Econoday.com’s consensus forecast sees claims ticking up to a seasonally 254,000 for the week through October 8, but that’s just shy of the previous week’s 249,000, a hair above a 43-year low. Taking the recent numbers at face value suggests that the US economy’s capacity to mint new jobs at a healthy pace remains intact.
If the projection for claims holds, the news will help soothe worries over last week’s September data for payrolls. The seasonally adjusted gain of 156,000 marks a four-month low for growth. Last month’s negative reading for the Federal Reserve’s Labor Market Conditions Index looks a bit worrisome as well.
Today’s update on claims appears set to remain the antidote of choice for relieving anxiety regarding the near-term outlook for job growth. But at this late date in the business cycle, there’s an ongoing debate about the relevance of low jobless claims and the connection with future hiring.
“With labour increasingly scarce and expensive, employers need to hold onto their existing staff, even though most surveys suggest their enthusiasm for new hiring has diminished since the early part of the year,” the chief economist at Pantheon Macroeconomics observed last week.
Even so, jobless claims that are low and/or falling are still preferable to a rising tide of layoffs. By that standard, today’s release will likely provide a degree of comfort, even if it’s getting tougher to equate diminished claims numbers with stronger expected hiring.
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US: 10-Year Treasury Yield: The benchmark 10-year yield inched up to another four-month high yesterday, reaching just below the 1.80% mark. “I think it's all about rates and discounting the coming [Fed] rate hike,” advised the chief market economist at First Standard Financial.
The policy sensitive 2-year yield has also been rising lately, strengthening the view that the crowd is increasingly expecting that the central bank will tighten policy before the year is out. As of mid-day trading on Wednesday, the 2-year reached 0.88%, the highest since late-May.
Fed fund futures continue to price in a roughly 70% probability of a rate hike at the December FOMC meeting, based on CME data, although the Fed is expected to leave rates unchanged in next month’s monetary announcement.
What might derail the market’s hawkish outlook? A weak retail sales report for September is a possible source of attitude adjustment. But tomorrow’s update is expected to bring the opposite. Econoday.com’s consensus forecast sees consumer spending rebounding sharply with a 0.6% gain for last month, which would be the strongest advance since June. Assuming the forecast holds, the prospects for even higher Treasury yields by the end of the week is a reasonable estimate.
USD/MXN: The Mexican peso has been strengthening in recent weeks, perhaps because Donald Trump’s campaign for the US presidency has been stumbling in October.
The “Make America Great Again” candidate has been critical of immigration and trade policy with Mexico over the course of his campaign. As a result, Mexico’s currency has been widely cited as a barometer of the ebb and flow of Trump’s popularity.
Looking at polling data suggests a connection. For example, Trump’s estimated chance of winning the election has been sliding since late September, according to FiveThirtyEight.com’s forecasting model. The real estate mogul’s probability of moving into the White House this January dipped to 13.5% yesterday, down sharply from over 45% on September 26.
Meanwhile, the peso has strengthened over that period. USD/MXN, which falls when the peso rallies in dollar terms, has eased 4% since September 26.
Trump’s election prospects have also fallen on hard times lately according to RealClearPolitics.com’s aggregated polling data. The website reports that the poll average in the Donald’s favour was a relatively light 41.8% on Wednesday, down from a two-month peak of 45% on October 2.
Nonetheless, it’s unclear if USD/MXN’s rising trend this year has been broken. But for the moment, Trump’s candidacy remains on the defensive and it’s not obvious that’s he’s about to regain lost ground in the polls. As such, the political winds appear to favour ongoing strength for the peso.
Disclosure: Originally published at Saxo Bank TradingFloor.com
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