US jobless claims cast a shadow: stocks remained under the cosh a bit as US initial jobless claims were worse than expected and show a levelling off in the week-on-week improvements we have seen over the last couple of months. The mild risk-off tone to the start of the US session is keeping stocks in the red after a softer European session, although we note a White House presser later on the session so this needs to be watched. The S&P 500 seems well controlled by the 3200 round number support and the resistance just below 3240 for now. Breaks either side of these may be chased.

In the week ending July 11th, the  seasonally adjusted initial claims hit 1.3m a decrease of 10,000 from the previous week’s revised level. The improving trend has all but halted and may reflect the spike in coronavirus cases that has coincided with renewed lockdown measures in a number of economically-important states such as Texas and Florida. California’s decision to roll back reopening signals there may be worse could be ahead.

Continuing claims came in at 17.3m vs the 18m last week and was a little better than the 17.6m expected. Moreover, there were some more encouraging signs the total number of people claiming benefits in all programs for the week ending June 27th fell to 32,003,330, a decrease of 433,005 from the previous week. However, this number may well deteriorate again as it reflects the imposition of new lockdown restrictions in California and others.

Unadjusted figures are less encouraging. The advance number of actual initial claims under state programs, unadjusted, rose 108k, or 7.8%, to 1.5m. The advance unadjusted unemployment rate was 11.9% during the week ending July 4th, an increase of 0.6 percentage points from the prior week.

Flattening the curve…

Retail sales in June bounced 7.5% vs the 5% expected and 17.7% in the prior month – the $600-a-week stimulus cheques are being spent, but these are due to come to an abrupt

The weaker-than-expected initial claims number left markets on the back foot, with no new vaccine reports to lift the mood we have to focus on the rather downbeat economic data which simply underscores the fact the recovery will be slow, hard-won and very uneven.

Meanwhile, the ECB left rates on hold as expected and Christine Lagarde appeared to push back against the tapering chatter by saying the ECB would use the full PEPP envelope of €1.35tn ‘barring surprises’. At the same time the emphasis is very much on the EU member states to agree on the recovery fund at the summit starting tomorrow, with the ECB’s assumption that a deal will be worked out.

Italian 10-yr yields sank to the lowest level since late March, while EURUSD was almost unchanged at 1.140 despite a choppy couple of hours. Lagarde also suggested the EU is in a ‘good place’ which presumably refers to historically advantageous geographic position as the Eurasian rump which has enabled it to play an outsized influence on global affairs, rather than anything relating to the current economic outlook. In that sense, the UK is in an even better place.