LIVE MARKETS Jobless Claims, home sales, Philly Fed: Fasten your seat belts

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  • Major U.S. indexes higher; Nasdaq out front
  • All major S&P sectors green: tech leads
  • Euro STOXX 600 index up ~0.5%
  • Dollar down slightly; gold ~flat; crude, bitcoin rise
  • U.S. 10-Year Treasury yield dips to ~1.84%

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JOBLESS CLAIMS, HOME SALES, PHILLY FED: FASTEN YOUR SEAT BELTS (11145 EST/1645 GMT)

Data released on Thursday was the equivalent of the seat-belt sign lighting up on a cross-country flight, accompanied by reassurances that the turbulence should shortly subside.

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The number of U.S. workers filing first time applications for unemployment insurance (USJOB=ECI) defied expectations last week by jumping 24% to 286,000, the highest level in three months. read more

Analysts expected claims to move in the other direction, shedding 10,000 to 220,000.

"The rise in claims reflects both an increase in layoffs due to the surge in Omicron cases as well as an added boost from large seasonal adjustment factors," writes Nancy Vanden Houten, lead U.S. economist at Oxford Economics, who expects "claims to gravitate back toward the 200k level once the Omicron wave passes."

Even with last week's surprise jump, initial claims remain near the upper end of the range associated with healthy labor market churn.

Ongoing claims (USJOBN=ECI), reported on a one-week delay, also rose more than anticipated, growing by 5.4% to 1.635 million - a level which is still below the pre-pandemic level of about 1.7 million.

Jobless claims

Separately, the sales of pre-owned U.S. homes (USEHS=ECI) tumbled in the last month of 2021 by 4.6% to a 6.18 million seasonally adjusted annualized rate (SAAR), according to the National Association of Realtors (NAR). read more

While demand remains robust, inventory of homes on the market remains depleted, dropping to a record low 1.8 months supply from 2.1 months in November.

Single homes on the market are even more scarce, dropping to 1.7 months supply.

"December saw sales retreat, but the pull back was more a sign of supply constraints than an indication of a weakened demand for housing," tweeted Lawrence Yun, chief economist at NAR.

Wednesday's report from the Mortgage Bankers Association, showing an increase in applications for loans to purchase homes even as interest rates are on the rise, suggests potential buyers are eager to ink the contract before rates drift any higher.

"Anticipation of higher mortgage rates could provide a lift to home sales over coming months but tight inventories and elevated prices will remain a constraint for buyers," says Rubeela Farooqi, chief U.S. economist at High Frequency Economics.

Existing home sales

Brighter economic news came courtesy of the Philadelphia Federal Reserve, which showed manufacturing activity expanding at a more robust pace than economists anticipated.

The Philly Fed Business index (USPFDB=ECI) jumped 7.8 points to a reading of 23.2, leap-frogging past the even 20 consensus.

The surge was driven by new orders and shipments, but the headline was held in check by slower delivery times and employment.

Perhaps the worst bit of news in the report was the 6.4 point increase in prices paid, suggesting that while supply chain issues might be on the wane, the resulting inflation is still peaking.

"The uptick in the Philly Fed index is a pleasant surprise after the plunge in the Empire State index," says Ian Shepherdson, chief economist at Pantheon Macroeconomics.

"On the supply side, unfilled orders rebounded but failed to reverse all the December drop, while the delivery times index, which is less volatile, fell to a four-month low," Shepherdson added. "Supply-chain pressures remain intense, but they appear not to be worsening further."

As Shepherdson points out, the report stands in stark contrast with Tuesday's Empire State print, which showed manufacturing in New York plunging into contraction territory for the first time in since June 2020.

A Philly Fed/Empire State reading above zero indicates expanded activity over the previous month.

Philly Fed

Wall Street is in recovery mode in late morning trading. All three major U.S. indexes are sharply higher, with the tech-laden Nasdaq (.IXIC) enjoying a comfortable lead.

(Stephen Culp)

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EUROPEAN BANKS: GREAT EXPECTATIONS AHEAD OF Q4 (1011 EST/1511 GMT)

Betting on the recovery of European banks has proved a mighty popular and lucrative trade, with the sector's index doubling since the November 2020 vaccine breakthrough, and then most of the world's central banks entering a tightening cycle.

The consensual "buy" rating on the sector seems here to stay unless a dramatic and nasty trend emerges from the earnings season.

Most of the banks listed on the pan-European STOXX are expected to report Q4 2021 results in February and the prospects are pretty good.

The broad financial sector as defined by Refinitiv is expected to show profits jumped 61.9% year-over-year, even higher that the average 48.6% seen for the STOXX 600.

In a note published today, Citi analysts provided clients with a rather long list of reasons to believe in European lenders:

1) The Fed will hike rates this year and the ECB should follow suit from 2023.

2) The direction of travel for yields is up

3) Rotation towards value stocks should provide a boost

4) Banks are trading on a discount both on their own historic average and against the broader market

5) Return on tangible equity is rising toward the cost of capital

6) Dividends and buybacks are on the way up

Here's the latest Refinitiv data for the different sectors of the STOXX 600:

er

(Julien Ponthus)

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U.S. STOCKS SNAP BACK IN EARLY TRADE (0957 EST/1457 GMT)

Wall Street's main indexes are higher on Thursday as results from American Airlines and Travelers kept the positive momentum going for the fourth-quarter earnings season, a day after the tech-heavy Nasdaq index plunged into correction territory.

This, as the U.S. 10-Year Treasury yield , has now deflated to the 1.8300% area after hitting a high of 1.9020% on Wednesday. With this, growth (.IGX) is enjoying its best day vs value (.IVX) in more than a month.

Indeed, tech (.SPLRCT), and FANGs (.NYFANG) are among outperformers in the early going. NYFANG index member Netflix will be reporting earnings after the close.

Meanwhile, as the Nasdaq Composite (.IXIC) attempts to recover, it faces resistance at its 200-day moving average, which now resides at about 14,750.

Here is where markets stand in early trade:

earlytrade01202022

(Terence Gabriel)

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S&P 500: ENOUGH ALREADY? (0900 EST/1400 GMT)

In the 11 trading days from its January-3 record close, the S&P 500 index (.SPX) has declined 5.5%. read more

Meanwhile, the 5-day moving average of the CBOE equity put/call (P/C) ratio, which can be viewed as a contrarian measure of sentiment, rose to 59% on Wednesday, or its highest level since a 59.2% reading on May 14 of last year. That high was just after the SPX completed a 4% slide, although in that case, over just three trading days:

SPXPC01222022

So far, in premarket trade on Thursday, equity index futures are higher , and the P/C measure is ticking down to 58%.

Of note, since bottoming at 40.2% in June 2020, the P/C measure has ranged between high-30% and low-60% readings. If this pattern is to continue, then the measure could now be signaling that market sentiment may have become sufficiently bearish. If so, the SPX may have found, or could be very close to, a low of some form.

However, also of note, for around 20 years, from 2000 to 2020, the measure's range was mostly in the 50% to 90% area. It has only been post the COVID-crash, that the P/C measure's range has shifted down to similar levels that led up to the tech-bubble peak in 2000.

Therefore, traders will be watching to see if the P/C measure is to oscillate back down toward, or below, 40%. read more

A breakout much above the low-60% area, however, may signal panic. The measure peaked at 105% on March 17, 2020, in what would prove to be a more than 30% S&P 500 collapse.

(Terence Gabriel)

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Terence Gabriel is a Reuters market analyst. The views expressed are his own

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