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  • U.S. unemployment claims expected to continue rising
  • U.S. existing home sales expected to plunge
  • U.S. PMIs are expected to show some recovery in business confidence
  • U.S. LEI is falling towards the Great Recession low
  • Investors scoop up 20-year T-bond in a good sign for today’s 10-year TIPS auction

U.S. unemployment claims expected to continue rising 
— The markets are expecting today’s report to show that initial unemployment claims continued to flood into state unemployment offices in the week ended last Friday.  The consensus is for today’s report to show 2.4 million new unemployment claims, down by -581,000 from last week’s 2.91 million but still an extraordinarily high level.  There have now been a total of 37 million filings for unemployment since the first week of March.

The markets are starting to watch the continuing claims data more carefully since some people are starting to go back to work as states slowly reopen.  That means that some people will be dropping their unemployment benefits as they are called back to work, which would cause continuing claims to drop.  Nevertheless, today’s weekly continuing claims report for the week ended May 8 is expected to rise by another +667,000 to 23.5 million, showing a larger rise than the previous week’s +456,000.  There are still many more people that are being put onto the unemployment rolls than are coming off.

Continuing claims have now risen by a net 21.1 million since the first week of March, which represents 13.3% of the size of the U.S. labor force in February. The 21.1 million rise in continuing claims is substantially less than 37 million initial filings.  Part of that is caused by the fact that the continuing claims report lags the initial claims report by a week.  However, the initial filings figure also over-counts to some extent because some people file duplicate claims or are denied claims and therefore don’t making it onto the continuing claims list.

Still, the unemployment claims data in general substantially understates the depth of the pain in the labor market since there are many people who might not qualify for unemployment benefits, or who cannot file for unemployment because they were part of the large U.S. unreported economy and were paid cash for the jobs that they lost.  The civilian unemployment rate in April already rose to a post-war record high of 14.7% and is likely headed to a peak above 20%.  The U-6 unemployment rate, which includes part-time and underemployed people, already rose to 22.8% in April.

U.S. existing home sales expected to plunge — The consensus is for today’s April existing home sales report to plunge by -19.9% to 4.22 million, adding to March’s -8.5% decline to an 11-month low of 5.27 million.  Today’s expected report of 4.22 million would be a new 8-3/4 year low and would put home sales back to the level last seen in 2011, not long after the Great Recession.

Despite today’s expected plunge in home sales, there have been anecdotal reports of strong bidding for homes in some areas despite the pandemic.  However, that has been caused mainly by the extremely low inventory of homes that are on the market.  In March, there were only 3.3 months worth of homes on the market, just mildly above the record low of 3.0 months seen in the previous several months.

In any case, the supply of homes on the market will move sharply higher in coming months as people who have been negatively impacted by the pandemic put their homes on the market to get out of their mortgages.  In addition, banks will be foreclosing on homes in large numbers in coming months and will then dump those homes onto the market.  That will likely put significant downward pressure on home prices, which would be a new source of worry for consumers.

U.S. PMIs are expected to show some recovery in business confidence — The consensus is for today’s Markit PMI indexes to show a modest upward rebound, suggesting that U.S. business confidence improved somewhat in May as states began to reopen.

The consensus is for today’s May Markit manufacturing PMI to rise by +3.4 to 39.5, remaining in deeply negative territory but regaining part of April’s -12.4 point plunge to 36.1.  Service sector confidence was in even worse shape in April, falling to a record low of 26.7.  However, today’s May services PMI is expected to show a modest upward rebound by +5.6 points to 32.3, recovering part of April’s -13.1 point plunge.

U.S. LEI is falling towards the Great Recession low — The consensus is for today’s April leading indicators report to plunge by another -5.4% m/m, adding to March’s decline of -6.7%.  On a year-on-year basis, today’s LEI is expected to fall to -11.7% y/y from March’s -6.5% y/y.  The LEI may be on its way to challenging the record low of -20.1% y/y seen in March 2009 towards the end of the Great Recession.

Investors scoop up 20-year T-bond in a good sign for today’s 10-year TIPS auction — There was solid demand for yesterday’s 20-year T-bond auction, which was a good sign for the new security and also for longer-dated Treasury securities in general.

The bid cover ratio of 2.53 meant that the Treasury received 2.53 times as many bids as securities that were sold.  In addition, indirect bidders took 60.7% of the auction, which indicated that foreign investors and central banks will be solid supporters of 20-year T-bond auctions in the future.

The Treasury today will sell $12 billion of 10-year TIPS in the second and final reopening of the 1/8% 10-year TIPS of January 2030.  The Treasury first sold that issue in January and then held the first reopening in March.  The benchmark TIPS has been trading in a very narrow range since early April and was trading late yesterday at -0.49%.

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