Jobless Claims data is out....

Initial claims for unemployment insurance increased by 16,000 heads in the week ending November 27th. This was 11,000 claims above the median forecast but well within the wide range of expectations (470 to 405). The 4-week moving average declined to 431,000 vs. 436,750 last week. The 4-week moving average continues to trend lower and is now at its best level since Aug 2, 2008.

Reuters Quick Recap....

RTRS-US JOBLESS CLAIMS ROSE TO 436,000 NOV 27 WEEK (CONSENSUS 425,000) FROM 410,000 PRIOR WEEK (PREVIOUS 407,000)
RTRS-US JOBLESS CLAIMS 4-WK AVG FELL TO 431,000 NOV 27 WEEK FROM 436,750 PRIOR WEEK (PREVIOUS 436,000)
RTRS-US CONTINUED CLAIMS ROSE TO 4.270 MLN (CON. 4.210 MLN) NOV 20 WEEK FROM 4.217 MLN PRIOR WEEK (PREV 4.182 MLN)
RTRS-US INSURED UNEMPLOYMENT RATE UNCH AT 3.4 PCT NOV 20 WEEK FROM 3.4 PCT PRIOR WEEK (PREV 3.3 PCT)
RTRS-US JOBLESS CLAIMS 4-WEEK AVERAGE LOWEST SINCE 419,000 IN WEEK ENDED AUG 2, 2008
RTRS-TABLE-U.S. jobless claims rose in latest week

Plain and Simple: From Reuters... Last week's claims covered the Thanksgiving holiday and filings tend to fall during that period. However, the decline in actual claims was not as large as the Labor Department's model had anticipated, leading to a rise in the adjusted claims figure, a department official said. Unadjusted initial claims totaled 410,617 in the week ending Nov. 27, a decrease of 54,196 from the previous week. From me...Check out the table above, initial jobless claims are officially trending lower. Economists will be encouraged as long as they remain below 450k.

Two questions arise when looking at this data.

1. What role has the holiday shopping season played in hiring. How many of these folks will lose their job when the gift giving season comes to a close? TBD....
   
2. The next "unknown" in the equation is...WHAT HAPPENS WHEN UNEMPLOYMENT BENEFITS EXPIRE?

USA Today says "About 2 million Americans stand to lose their jobless benefits this month after Congress failed to pass an extension by Tuesday's deadline. About 800,000 will be cut off by the end of next week, and 1.2 million will run dry by Dec. 31 if lawmakers don't act."

Individual benefits depend on a person’s previous pay. Generally, payments are 50 percent of previous earnings, up  to a maximum amount. Maryland’s cap is $410/week and Virginia’s $378/week. I'm not going to use the maximum amounts to illustrate a loss of consumer purchasing power though,  instead let's assume a modest $200/week unemployment check.

Not discounting for the inflation rate, if 800,000 folks lose their benefits, $160,000,000 in weekly "income" will be erased. If 1.2 million people lose their benefits, the weekly total rises to $240,000,000. So it looks like we have a choice to make, we can socialize the losses and extend unemployment benefits or we can wait and see what happens.  Uncertainty uncertainty.....sure does make it difficult to write a strategic investment outlook.  READ MORE ABOUT UNEMPLOYMENT BENEFITS

Market Reaction...

10s touched 3.02% leading into the release of jobless claims data. Immediately after the data flashed 10s rallied from overnight price lows/yield highs back into 2% territory, the yield curve flattened, and "rate sheet influential" MBS coupons made a significant move higher in price. The 10yr note is currently -6/32 at 96/28 yielding 2.99%. The FNCL 4.0 was priced at 99-15 before 830 data and is currently bid at 100 the rock. This large price jump relative to a small change in yield illustrates just how much duration and negative convexity are present in current MBS coupons. 

At this point it feels like both stocks and bonds have priced in a better than expected NFP print tomorrow morning. Even though jobless claims rose last week, it was a factor of a holiday adjustment in the labor department's model, thus I wouldn't be holding my breath for much positive progress in the bond market today. Hedge ratios have extended too far to warrant sizable speculative bargain buying but we should see some nibbling at the price lows/spread wides.  Directionality is dependent on the Employment Situation Report tomorrow.

BIG PICTURE PERSPECTIVE....

We've been watching this chart since June.  Our bullish trend channel is in danger of being broken.  The 3.00% to 3.10% range is very important long term support...