Continuing Claims Come in Worse
While CPI was the main focus of the morning’s economic data, jobless claims were the other major release of the morning. Last week’s reading on seasonally adjusted initial claims was revised up by 2K to 209K and this week’s reading was unchanged from that level. That was slightly below forecasts which were calling for claims to rise further to 210K. Overall, claims have seen a rebound in the past few weeks, but that is still well below the range of readings from earlier this year.
Being the fourth quarter, seasonal tailwinds will shift to headwinds over the next few months. Prior to seasonal adjustments, initial claims saw a sizeable 22.8K week-over-week jump. Claims rising in the current week of the year is very normal as it has occurred 85.7% of the time historically. Given that increase, that would confirm last week as the likely annual low in unadjusted claims (at least for the time being). As we noted last week, that is a bit later than normal, but not exactly without precedence.
Relative to initial claims, continuing jobless claims have maintained a more consistent trend over the past several months. This year has seen continuing claims consistently grind lower, but that trend is not as strong as it once was as claims have appeared to round out a bottom. Continuing claims topped 1.7 million this week. That is the highest reading since the week of August 19th and was well ahead of expectations of 1.675 million. While claims are by no means weak (outside of the few years prior to the pandemic, current readings remain around some of the lowest since the early 1970s), both initial and continuing claims have seen modest deterioration recently.
Bulls Pile Back In
The S&P 500 has been in rebound mode over the past week, having now rallied 3.45% off the October 3rd low. In turn, sentiment has taken a distinguished bullish turn to start out the month of October. That compares to last month when sentiment took a more bearish tone as we discussed in Tuesday’s Closer. On top of a 2.2 percentage point increase in bullish sentiment last week, this week saw the percentage of respondents to the AAII survey climb another 9.9 percentage points. That brings bulls up to 40%, the highest since the first week of September, and back above the historical average (37.5%).
Bearish sentiment saw a corresponding pivot lower. Bears are now down to 36.5% versus the recent high of 41.6% last week. While that is only the lowest level since the week of September 21st, it was the largest week-over-week drop since June 8th. Additionally, that decline has not been enough to bring bearish sentiment back to normal levels as it is still 5.43 percentage points above the historical average.
That has resulted in the bull-bear spread tipping back into positive territory for the first time in a month.
Of course, the drop in bearish sentiment was not nearly as large as the increase in bullish sentiment. That was because there was a notable decline in neutral sentiment. That share of respondents reporting that they expect unchanged prices fell by 4.8 percentage points this week. Not only was that the fourth week-over-week decline in a row, but it was also the biggest one-week decline since July. Now at 23.5%, neutral sentiment registered its smallest share in just under one year.
Bespoke’s Morning Lineup – 10/12/23 – Happy Anniversary
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Inflation data and the upcoming earnings season have been the short-term focus of investors lately, but from a long-term perspective, today markets the one-year anniversary of the bear market low from last year. While the S&P 500 remains below its highs from late July, it is still up over 20% from the closing low a year ago today. Happy Anniversary!
Yesterday’s data was the warmup, but today’s CPI report for the month of September is the main event in a market that has been hypersensitive to inflation data for several months now. As shown in the chart below, the S&P 500’s trailing 12-month average daily change on CPI days has been above 1% since August 2022 and peaked at just under 2% this January. The only other time since 2000, that the S&P 500 was more volatile on CPI days was at the height of the financial crisis from late 2008 and through 2009.
Over the last two months, the S&P 500’s change on CPI days has been much more toned down with a gain of just 0.03% following the July report in August and a gain of 0.12% after the August report last month. Those subdued readings have taken the 12-month average down to 1.11%, and unless the S&P 500 moves up or down 1.25% today, the 12-month average will fall back below 1%.
The September CPI report just hit the tape and the results came in generally higher than expected. Headline CPI rose 0.4% m/m versus forecasts for an increase of 0.3% while core CPI was right in line with forecasts. As you might expect, equity futures have given much of their earlier gains while rates are higher. Obviously, these higher-than-expected readings in yesterday’s PPI and today’s CPI show that the road to lower inflation is a windy one. Jobless claims were also just released, and initial claims were pretty much right in line with forecasts while continuing claims rose more than expected.
Similar to the charts we showed yesterday of the PPI relative to its historical average, below we show how current levels of headline and core CPI on a year/year basis stack up relative to history. At the headline level, the current level of 3.7% is below its 50-year average reading of 4.0% but still above its 25 and 10-year averages of 2.5% and 2.7%, respectively. On a core basis, the picture is even worse with the current level of 4.1% above its 50 (4.0%), 25 (2.5%), and 10 (2.7%) year averages.
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The Closer – Speaker’s Race & Minutes, PPI, Terrible 10s – 10/11/23
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Looking for deeper insight into markets? In tonight’s Closer sent to Bespoke Institutional clients, we begin by running through the latest news regarding the House Speaker race, autoworkers strike, and Fed minutes (page 1). We then review today’s PPI data (page 2) before closing with a look into the weak 10 year note reopening (page 3).
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Daily Sector Snapshot — 10/11/23
Chart of the Day – CPI Preview
Fixed Income Weekly — 10/11/23
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Bespoke’s Morning Lineup – 10/11/23 – “PPHigher” Than Expected
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US equity futures are pointing to the fourth day in a row of gains this morning as last week’s oversold levels, positive seasonals, and a lack of escalation in the Middle East have all contributed to the positive tone. The fact that US Treasury yields were sharply lower again after some non-hawkish commentary from Fed speakers like San Francisco President Mary Daly and Fed Governor Michelle Bowman has also helped. The only thing left to get through was PPI, but unfortunately, those numbers were on the hot side.
PPI for the month of September was just released, and the headline reading came in much higher than expected (+0.5% m/m vs 0.3% m/m expectations). The core reading also topped expectations at 0.3% compared to forecasts for a reading of 0.2%. Those readings took the year/year levels to 2.2% (versus 1.6% expectations) at the headline level and 2.7% on a core basis (2.3% expected).
As shown in the charts below, the move higher in headline PPI has sandwiched it right between its pre-COVID average of 1.7% dating back to November 2010 when the current iteration of Final Demand began and its overall average of 2.6%. On a core basis, September’s reading of 2.7% is above its overall average of 2.6% and nearly a full percentage point above its pre-COVID average of 1.8%. There’s still some work to do on the inflation front!
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The Closer – 10y Rejection, GDPNow, Consumer Expectations – 10/10/23
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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 bond rally (page 1) followed by a dive into GDPNow (page 2). We then look at the horrible 3 year note auction (page 3) and latest sentiment data (page 4) before closing with a rundown of the NY Fed’s Survey of Consumer Expectations (pages 5 & 6).
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