Highest Jobless Claims Since 2021 Sends Rates Lower

Rates rally, backpedal from yesterday’s move. Swap rates and Treasury yields fell across the curve today, partially reversing yesterday’s significant sell-off. The 2-year yield fell ~4bps to 4.51% while the 10-year yield declined ~8bps to 3.72%. The move was largely spurred by jobless claims data (261k), which came in well above the forecast of 235k. Meanwhile, futures continue to suggest a high probability of a 25bp hike by the end of the July FOMC meeting, the odds currently at ~79%.

Labor market shows signs of cooling as some economists suggest layoffs have spread to more segments of the economy. Today’s jobless claims figure provided more fuel for arguments that recent data are signaling a cooling labor market. The increase in jobless claims was the largest since July 2021 and exceeded all forecasts in a Bloomberg survey of economists. In addition, US companies announced more layoffs in the first five months of 2023 than all of last year.  Some economists believe that layoffs from earlier in the year are only now being reflected in jobless claims, while others think the jump illustrates that layoffs have spread from interest-rate-sensitive industries to others. The data follows last week’s monthly jobs report, which painted a mixed picture of the labor market given a slightly elevated unemployment rate, despite remaining in a historically low range. Still, U.S. economist at Oxford Economics Matthew Martin said that jobless claims “remain well below our estimate of 305,000 to be consistent with no monthly job growth.”

Day ahead. Oil figures will be released at 1 PM in an otherwise quiet session.