The Day Ahead: Quiet Session Leaves Focus On Jobless Claims

Thursday boasts an uncommonly light overnight session in the EU and Asia followed by an only slightly less extraordinary morning for the domestic session where Initial Jobless Claims will be the only relevant data set.  There was a time--recently even--when the Jobless Claims report immediately preceding an NFP week wouldn't matter as much as the report that was tallied on the same week as the NFP Establishment Survey.  

But it has been increasingly the case that every last little bit of employment data "matters" in an environment where billions of dollars a month in direct bond market participation are even remotely hinged to employment data.  If that sentence was too much of a run-on, the point is that Fed policy now contains employment thresholds.  While the Fed has done a decent (even if 'horse after cart') job of qualifying that it's not as simple as one employment metric, markets won't disconnect the notion of labor market strength from Fed policy until/unless the Fed says otherwise.  So in addition to the good old-fashioned "Unemployment Rate," markets have been keen on other good lines in the sand.

One such line is 362k in terms of the 4-week moving average for Initial Jobless Claims.  It has a good recent track record as an inflection point for the series, serving as a floor in 2012 and a ceiling so far in 2013.  Today's Claims projections call for a scant 351k and it would take a print of 364k with no revisions to last week's tally in order for the 4-week average to make it over 362k.  As such, we might not see much by way of bond-market-friendly impact on a miss that doesn't convincingly challenge the 4-week average (something closer to 370k, or whatever it takes with revisions to get the average over 362k). 

By way of caveat, it's worth noting that today is also the last of the Auction cycle and some of the resistance seen in Treasuries so far this week could be a bit of hold-back for that.  This is a stretch though, as 2's, 5's, 7's have had a more "housekeeping" feel to them, as have most auctions at this stage in the economic cycle (i.e. stuff was more interesting when we were seeing big surprises in bidding allocations).  Apart from the auction, the European headline mill still matters, and a sufficient EU surprise headline reserves the right to set the tone and break intermediate ranges (unlikely, but possible).