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Jobless Claims Rise, ECB Updates Guidance

by Karl Schamotta | July 22, 2021

419,000 Americans filed new claims for unemployment benefits last week, disappointing investors who had expected a number closer to 350,000. The total recorded in the prior week was revised up to 368,000 from the previous 360,000 estimate.

In the week ending July 10, 3,236,000 people continued to collect unemployment benefits, down 29,000 from the prior week.

A total of 9,268,000 people remained on Pandemic Unemployment Assistance and Pandemic Emergency Unemployment Compensation programs, even as states cut back on emergency benefits.

These numbers provide more evidence of deceleration: In continuing to print above expectations, weekly claims are suggesting a loss of momentum in the US labour market – something that could push Federal Reserve tightening plans further into the future and put further pressure on bond yields.

Earlier this morning, the European Central Bank changed its forward guidance on interest rates: In its latest monetary policy decision, the institution said it now expects to hold interest rates at “present or lower levels until it sees inflation reaching two percent well ahead of the end of its projection horizon and durably for the rest of the projection horizon, and it judges that realised progress in underlying inflation is sufficiently advanced to be consistent with inflation stabilising at two percent over the medium term”.

The Bank plans not to think about thinking about raising rates: Three key phrases in the statement – “well ahead”, “durably”, and “realised progress” – suggest that central bankers will have to see the whites of inflationary eyes before tightening policy.

Overshoots will now be tolerated: According to the statement, policymakers are willing to endure a “transitory period in which inflation is moderately above target” – a departure from the previous regime, in which prices could rise, “close to, but below, two percent”.

The move was well telegraphed: Today’s change comes after the conclusion of a 19-month strategic review, in which the 25 members of the governing council agreed to let price growth run hotter – and after executive board member Isabel Schnabel said, “Higher inflation prospects need to be visibly reflected in actual underlying inflation dynamics before they warrant a more fundamental reassessment of the medium-term inflation outlook”.

With the perceived threshold to monetary tightening rising, the euro is falling: As we went to pixels, the common currency was trading slightly below levels that prevailed ahead of the release – but we would caution against reading too much into this: inflation in the euro area, which ran close to 2.3 percent between 1999 and 2008, has averaged 1.2 percent ever since. The central bank’s philosophical pivot is hardly sufficient to counteract the deeper demographic, political and technological forces that are keeping prices depressed – and weakening the currency bloc’s performance relative to the United States.

Karl Schamotta – Chief Market Strategist,

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