U.S. Jobs Data Beats Expectations

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The number of Americans filing for unemployment benefits rose by its smallest amount since onset of the coronacrisis in March according to new data, although the figure remained above the 1 million mark.

U.S. Initial Jobless Claims rose 1,186K in the week ending August 01 according to the U.S. Department of Labor, down 249K from the previous week's revised level of 1,435K. The market was looking for a reading of 1.400K, ensuring this was a comfortable beat on expectations.

The previous week's level was revised up by 1K from 1,434,000 to 1,435K. The 4-week moving average was 1,337,750, a decrease of 31,000 from the previous week's revised average.

Image courtesy of Bloomberg.

"Despite larger than expected decline, improvement has slowed," says Marc Chandler at Bannockburn Global Forex.

However, the outlook for the employment situation in the U.S. is improving says one economist.

"The story here, we think, is that layoffs triggered by the second wave of Covid-19 in the South and West are now falling; we don’t expect further significant restrictions to be imposed on a wide scale. Initial claims, therefore, ought to fall further," says Ian Shepherdson, Chief Economist at Pantheon Macroeconomics.

Continuing claims meanwhile fell 844K to 16.1 million which on the surface is another promising development, but Shepherdson says the data is deceiving:

"The plunge in continuing claims, by contrast, is not as good as it looks, because the week of July 25 was an “off” week for states which require only biweekly filing. Adjusting for this effect, we think continuing claims fell by about 230K, much less than the headline 844K drop. Continuing claims have been a decent guide to payrolls in recent months, so the clear slowdown in the rate of decline over the past few weeks is ominous.

The S&P 500 index registered a move higher on the better-than-expected data, however the numbers failed to register on foreign exchange markets, with investors likely opting to keep their tinder dry ahead of the more important release of non-farm payroll numbers on Friday.

Foreign exchange markets have increasingly turned focus to the recoveries of the world's major economies, with investors favouring the currencies of economies where the recovery is faster and more robust. 

This is particularly relevant for the Euro-Dollar exchange rate which has rallied to its highest levels since early 2018 on a view that the Eurozone's recovery is outperforming that of the United States. Therefore, we would expect greater emphasis to fall on Friday's non-farm payroll data than has been the case for some time.

If the data beats expectations it could offer the Dollar some support on the view the U.S. economy will see it's stuttering recovery find its feet once more, allowing for the performance gap with the Eurozone to be closed somewhat.

"The USD has already lost much of its relative advantage in interest rates and growth. Investors may see non-US assets offering relatively more attractive returns, with long-term investor and reserve manager net USD outflows a key driver," says Alexis Calla, Chief Investment Officer at Standard Chartered.

Standard Chartered expect a decline of around 6-7% in the broader Dollar over the coming 12 months, they meanwhile forecast the Euro-Dollar exchange rate to reach 1.24.