Thursday, December 30, 2010

Market UpDate W/Labor Department Claims below forecasts

Thursday’s bond market has opened in negative territory following the release of much stronger than expected economic data. The stock markets have had little reaction to the news with the Dow up 9 points and the Nasdaq down 2 points. The bond market is currently down 9/32, but we will still see a noticeable improvement in this morning’s mortgage rates due to strength late yesterday. If comparing to yesterday’s morning rates, we should see an improvement of approximately .375 of a discount point.
The Labor Department said early this morning that 388,000 new claims for unemployment benefits were filed last week. This was well below forecasts of 416,000 and the lowest total since July 2008. At first appearance, the headline number could be concerning for the bond market and good news for stocks. The size of the drop and the number of new claims hints at a strengthening employment sector. In fact, the number of weekly new claims has risen only once in the past 6 weeks.
That said, the markets have not had a significant reaction to the data for a couple of reasons. First and primarily, the data covers only a single week’s worth of new claims. Another portion of the report showed that the number of continuing claims for benefits (claims that are not new) rose during the week when analysts were expecting them to remain flat. Also, the reason for the drop in new claims could be the Christmas Holiday last week where state offices were closed at least one of the five days. So, while the headline number of 388,000 does draw attention, it comes from a report that does not carry significant importance because of the short term it covers and were statistics from a holiday-shortened week.
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