Early gains were wiped out for the U.S. stock futures market as attention turns to today's jobs report.
U.S. stock futures took a turn lower on Thursday morning after a whipsaw session overnight. Dow Jones Industrial Average (DJIA) futures were down as much as 200 points higher in early trading. The market opened lower as a result.
The slump comes ahead of the week’s jobless claims report. Continuing claims are expected to remain stubbornly high suggesting that many ‘temporary’ layoffs are in fact permanent.
Dow futures flip-flopped on Thursday, briefly turning positive in the early hours before heading back lower. The blue-chip index opened lower at the start of New York trading and was last down 63 points or 0.2%.
As usual, Thursday’s jobless claims data hits the wire at 8.30 am ET. What can we expect? Lou Crandall, chief economist of Wrightson ICAP, is nervous.
There is still a steady stream of new layoffs as corporations adjust to the new coronavirus reality.
He sees a worrying trend that ‘temporary’ layoffs are becoming permanent. And white-collar jobs are now facing cuts as corporate America prepares for a recession and bankruptcies loom.
As for the numbers, initial claims should continue to drop for the 11th straight week. The latest Reuters poll predicts 1.3 million new claims this week, down from 1.5 million last week.
But the more important figure now is containing claims. And this isn’t falling as fast as hoped. We’re expecting that number to come in at 19.8 million. As you can see on the chart below, this figure has remained stubbornly high over the last few weeks.
The flatlined numbers suggest jobs aren’t coming back, despite the re-opening efforts. It’s a new wave of permanent losses. As Citibank’s Andrew Hollenhurst put it:
We are becoming increasingly perplexed by relatively stable jobless claims that should be dropping rapidly if net rehiring is occurring.
There’s also a concern that unemployment will spike again when the government’s Paycheck Protection Program runs out. Traders are confident that the worst unemployment numbers are already in, but jobs might not come back as fast as hoped.
The stock market’s brief spike higher this morning came after a breaking report out of Beijing. Despite recent fears of a second outbreak in China’s capital, health authorities say the spread is ‘under control.’ The statement came from Wu Zunyou, the chief epidemiologist of China’s Center for Diseases Prevention and Control.
Fears of a second wave outbreak have rattled the stock markets since Beijing’s report earlier this week. Rising cases in the United States also prompted fears of resurgence. But experts are increasingly downplaying the likelihood of a second lockdown. Speaking about the rising numbers in Texas, former FDA Commissioner Scott Gottlieb said:
We need to find the source of the spread. We’re not going to shut down the country again. There’s no appetite for that among the people or the political class. And we shouldn’t have to, because we have better testing in place.
He noted that there was a strong rise in hospital admissions between the ages of 20-30. That’s strong evidence that the outbreak is spreading in bars which re-opened this month. Rather than lock down huge swathes of the country, he said, we can take a more targeted approach.
This article was updated at 8.15 am ET.
Last modified: June 18, 2020 2:10 PM