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Jobless Claims Decline Further, ECB Slows Bond Purchases

by Hector Demarco | September 9, 2021

The latest report from the Department of Labor showed that the number of Americans filing new claims for unemployment benefits fell 35,000 to 310,000 last week, broadly matching market forecasts. The 4-week moving average – used to smooth out weekly volatility and discern longer-term trends – tumbled to 339,000, a drop of 16,750 from the previous week’s revised average.

2.78 million people continued to collect jobless benefits under regular state programs in the week ending August 28, and in the week prior to that, 11.93 million were receiving payouts under all federal programs.

The print did little to change market expectations: The jobless claims number may help analysts identify marginal changes in labour markets, but is overshadowed by the 7.5 million people who stopped receiving supplementary federal unemployment benefits last week. Markets remain unsure as to whether the termination of added payouts on September 6 will help boost employment in the upcoming months – supporting a Federal Reserve decision to reduce monetary stimulus – or remove a critical source of demand, limiting growth and keeping monetary stimulus flowing.

Traders are girding for another weak non-farm payroll report: With the number of new coronavirus infections remaining elevated, and long hiring cycles delaying the return to work, the September data – to be released on October 8 – could prove disappointing.

This raises the stakes ahead of the next Federal Reserve meeting: Over the last week, markets have sharply downgraded expectations for a tapering signal on September 22, with greater emphasis being placed on the nuances that could be communicated during the post-decision press conference and the meeting minutes (which will be published three weeks later). With only one payrolls report scheduled before the November meeting, the balance of opinion on the Federal Open Market Committee could play a critical role in guiding expectations around the monetary tightening trajectory.

Earlier this morning, the European Central Bank decided to slow down the pace of its pandemic bond-purchasing program: This was widely anticipated – a highly vaccinated population and ebbing supply chain issues have put the European economy on the path toward a full recovery by year end, and inflation rates have hit uncomfortable levels. Year-over-year price growth hit 3 percent last month, and officials like Robert Holzmann and Klaas Knot have publicly called for tighter policy.

But the euro remained unmoved: By moving to a “moderately lower pace” of net asset purchases and reiterating a commitment to keeping the 1.85 trillion-euro program running until March 2022, the central bank kept market interest rate expectations – and exchange rates – well anchored.

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