Continuing Claims Conflict With Initial Claims
The back half of September into the first couple of weeks of October saw jobless claims rebound off their lows. Last week saw that rebound grow with a modestly upward revision to 211K. However, there was a substantial improvement this week with claims dropping to 198K and back below 200K for the first time since the last week of January. That compares to expectations for a reading of 210K.
On a non-seasonally adjusted basis, that improvement is even more impressive. Claims totaled a meager 181K. For the comparable week of the year, the only years with lower readings were 1967 through 1969. While the one-week move is impressive and indicates claims remain at historically strong levels, this time of year has historically seen claims drift higher into year’s end.
While initial jobless claims had a positive move, continuing claims are sending a conflicting signal. After seasonal adjustment, continuing claims have risen for four weeks in a row and are now at the highest levels since early July.
Chart of the Day – Mortgage Rates Versus Treasury Yields
Bespoke’s Morning Lineup – 10/19/23
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“I am not a politician… I only suffer the consequences.” – Peter Tosh
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With complete dysfunction in Washington, we’re all suffering the consequences of politicians. The continuing resolution keeping the government open expires on 11/17, and besides the geo-political turmoil around the world that needs to be addressed, the longer Republicans in the House go without reaching an agreement on who to elect as speaker, the more likely it is that we reach that mid-November deadline without a budget agreement. As easy as it is to complain about the incompetence in DC, though, Thomas Jefferson was right when he said, “The government you elect is the government you deserve.”
After a disheartening session on Wednesday, things aren’t looking all that positive this morning. Nasdaq futures are the lone bright spot following a positive reaction to Netflix (NFLX) earnings as the stock is poised to gap up over 13%. Tesla (TSLA), however, is moving in the opposite direction as the stock is trading down over 7% following a weak report that showed compressed margins and some downright somber commentary from Elon Musk. S&P 500 futures are essentially flat, and Dow futures are low.
Outside of equities, crude oil is trading down by about 1%, gold is slightly lower, the dollar is mixed, and bitcoin is modestly higher. The real action this morning, however, is in the Treasury market, where yields are higher across the curve with the biggest upside moves coming the further out you go as the 10-year yield is up over 7 basis points to just under 5% (4.98%). 5%!
On the economic calendar, jobless claims will be released at 8 AM, and are expected to remain right around the same levels as last week. Along with those numbers, the Philly Fed Manufacturing report will also be released at 8:30 (expectations are for a modest increase) and Existing Home Sales will hit the tap at 10:00. On the jobless claims front, initial claims were lower than expected while continuing claims came in modestly ahead of forecasts but at the highest level since June. Philly Fed was modestly weaker than expected and came in negative at the headline level for the 13th time in the last 14 months. Besides those numbers, Fed Chair Powell will speak at noon along with five other Fed officials throughout the day. Depending on their messages, it could be a pivotal day.
Admittedly, there’s not a lot of positives out there this morning, but we’ll give you two. First, while today’s date is October 19th, it’s not October 19th, 1987. Second, despite oil prices hovering near $90 per barrel, gas prices have been falling hard. As shown in the chart below, the national average price of a gallon currently sits at $3.565, according to AAA, and that’s the lowest price since July. You know what that means? More money to go inside and grab a bag of Doritos, a Big Gulp, and if you’re really adventurous, one of those things on the hot rollers!
Over the last month, national average gas prices are down just over 8% which is the largest 30-day decline of the year and ranks in in the lowest decile of 30-day returns dating back to 2005.
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The Closer – Beige Book, Consumer Finances, Residential Construction – 10/18/23
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Looking for deeper insight into markets? In tonight’s Closer sent to Bespoke Institutional clients, we begin with a look at the Beige Book (page 1) followed by a rundown of the latest Survey of Consumer Finances (page 2). We then dive into the latest residential construction figures (pages 3-5) before pivoting to a recap of today’s 20 year bond reopening (page 6). We finish with a review of the latest petroleum inventory numbers (page 7).
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Bespoke Baskets Update — October 2023
Daily Sector Snapshot — 10/18/23
Fixed Income Weekly — 10/18/23
Searching for ways to better understand the fixed income space or looking for actionable ideas in this asset class? Bespoke’s Fixed Income Weekly provides an update on rates and credit each week. We start off with a fresh piece of analysis driven by what’s in the headlines or driving the market in a given week. We then provide charts of how US Treasury futures and rates are trading, before moving on to a summary of recent fixed-income ETF performance, short-term interest rates including money market funds, and a trade idea. We summarize changes and recent developments for a variety of yield curves (UST, bund, Eurodollar, US breakeven inflation, and Bespoke’s Global Yield Curve) before finishing with a review of recent UST yield curve changes, spread changes for major credit products and international bonds, and 1-year return profiles for a cross-section of the fixed income world.
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Chart of the Day – Best Stocks on Q3 Earnings
Housing Starts Muted Relative to Expectations
Following Monday’s weaker-than-expected report on homebuilder sentiment, actual data on residential construction data in the form of Building Permits and Housing Starts came in mixed relative to expectations. While Housing Starts missed expectations by 25K (1.358 million versus 1.383 million), Building Permits topped forecasts by 20K (1.473 million versus 1.453 million).
The table below breaks down both reports by the size of units and on a regional basis. In last month’s report, the big miss in Housing Starts was due to a sharp decline in multi-family units, but they drove the 7.0% m/m increase in September with a gain of 17.6%. On a y/y basis, though, multi-family units are still down 31.4%. On the multi-family front, Building Permits picked up where Housing Starts left off last month with a 14.3% decline on a m/m basis and a 29.7% y/y decline. On a regional basis, the Northeast experienced the largest m/m decline in terms of both Building Permits and Housing Starts.
Taking a longer-term look at Housing Starts on a 12-month average basis, they continued to roll over in September. At an average monthly rate of 1.4 million, Housing Starts are well off the post-COVID peak from mid-2022 but are still above pre-COVID levels just below 1.3 million. So, on that measure and coupled with the spike in rates, one could make a valid argument that the level of Housing Starts has further to fall in the short term.
Looking at the 12-month average of Housing Starts and Building Permits from a shorter-term perspective shows that both indicators remain weak. While Housing Starts briefly stabilized this summer, they’ve resumed their downward trend in the last couple of months. Building Permits have been in a more pronounced downtrend where the 12-month average reading has declined for 14 straight months- the longest streak of declines since the Financial Crisis. Like Housing Starts, though, the current level of Building Permits is still above its pre-Covid peak.
Bespoke’s Morning Lineup – 10/18/23
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“There are no rules here — we’re trying to accomplish something.” – Thomas Edison
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Oil is trading higher this morning after President Biden’s planned meeting with Arab leaders was scrapped after the bombing of a hospital in Gaza which each side is blaming on the other. At the margin, the trip’s cancellation raises risks of an escalation of the conflict, hence the rise in oil prices and lower equity prices. Normally, you’d expect to see treasuries rally in a situation like this, but they’re so out of favor these days, that they’ve only managed a modest rally.
Earnings season is finally kicking into gear, and after the close, we’ll get reports from Netflix (NFLX) and Tesla (TSLA), but this morning we’ve already seen notable reports which include Morgan Stanley (MS), Procter & Gamble (PG), and Travelers (TRV). Overall, results relative to expectations have been uninspiring as just over two-thirds of companies reporting this morning have exceeded EPS forecasts while less than half topped revenue estimates.
On the economic calendar, the only reports of note this morning were Building Permits and Housing Starts. Both reports came in close to expectations with Housing Starts slightly missing forecasts while Building Permits slightly beat.
Just when you think that European stocks are going to reverse their long-term underperformance relative to the US, US stocks start outperforming again. The last six months have been a perfect example. The chart below compares the rolling six-month performance between the S&P 500 and the STOXX 600 on a dollar-adjusted basis. While the two indices performed in line with each other in the spring, once Memorial Day arrived, US stocks started to pull away, and through yesterday’s close, the S&P 500 was up over 5% in the last six months while European stocks were down over 6%.
From a longer-term perspective, this trend is nothing new. The chart below shows the rolling six-month performance spread between the S&P 500 and the STOXX 600 ($-adjusted). Over the last 20+ years, especially since the Financial Crisis, there have been multiple six-month periods where the US outperformed Europe by an even wider margin (and far fewer periods where Europe outperformed the US by a wide margin). One major exception, though, was in the six months coming out of last October’s lows though April of this year. During that six-month period, Europe outperformed the US by more than 20 percentage points, which was the widest margin of outperformance on the part of Europe relative to the US since the Financial Crisis. It didn’t last long, though, and that period was more the exception than the rule.
The above quote from Thomas Edison is something to think about when you look at the trend of US outperformance relative to Europe. Sometimes, the more ‘rules’ you have the harder it is to accomplish things, and on the issue of regulation, Europe has a much higher burden than the US.
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