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Jobless Claims Beat Consensus, Remain Extraordinarily High

Karl Schamotta December 31, 2020

The number of Americans filing requests for unemployment insurance dropped very slightly last week, suggesting that newly approved stimulus spending could be critical in sustaining the labor market recovery. Data released by the Bureau of Labor Statistics this morning show 787,000 initial jobless claims submitted in the week ended December 26, beating expectations for a print closer to 825,000.

Continuing jobless claims, a proxy for the number of people receiving benefits through regular state programs, fell to a seasonally-adjusted 5,219,000 in the week ended Dec. 19.

In total, 19.5 million citizens were receiving some form of unemployment benefit as of December 12 – ten times higher than pre-pandemic levels.

The data come after Donald Trump – in one of his last presidential attempts at practicing the Art of the Deal – threatened to veto a Covid-19 relief bill that would increase unemployment benefits by $300 a week, only to reverse himself. Funds approved under the bill should help drive an improvement in labor market outcomes in January, with several hundred billion dollars in small business aid and a top-up in the Paycheck Protection Program helping employers keep workers on payrolls.

But with initial and continuing claims continuing to exhibit weakness through December, the next non-farm payrolls report, due on January 8, is likely to show the first net decline in employment since the pandemic hit.

Markets largely ignored the release, with year-end rebalancing flows dominating exchange rate dynamics as the clock counts down toward midnight.

Proving that foreign exchange markets always retain the capacity to surprise, risk-sensitive currencies like the Australian, Canadian, and New Zealand dollars are set to end 2020 on a high note, while the greenback looks likely to finish at its lowest levels since early 2018. The British pound rose another 0.5% overnight but continues to lag most of its developed-market peers against the dollar – which has fallen almost 6% on a trade-weighted basis through the year.

In contrast, the euro has managed an astonishing 9.5% rise over the last 12 months, outpacing even the Chinese renminbi, which is up 6.5% for the year.

Happy New Year. We hope that all of our readers have a healthy, joyful, prosperous – and less interesting – 2021.

And remember – in less than 19 hours, hindsight really will be 2020.

Karl Schamotta
Chief Market Strategist