Jobless claims trend downward as commodity prices rise
Jobless claims continued their trend downward as commodity prices continue to push upward, signaling an economic recovery. Fed minutes demonstrated a “wait and see” mindset with openness to taper bond purchases in the future.
The Federal Reserve released minutes from its April policy meeting on Wednesday. The board voted unanimously to maintain current policies of buying $120 billion worth of Treasury and mortgage bonds each month in addition to holding rates near zero. This vote came prior to more recent economic data indicating a surge in inflation and constrained supply chains. While Fed officials have repeatedly stated their view that higher inflation this year will prove to be temporary, the minutes also indicated that the group may discuss plans for reducing their bond buying program at future meetings. Yields on 10-year Treasury notes rose as high as 1.69% on Wednesday after minutes were released. The U.S. dollar rallied on Wednesday based on the potential for Fed tightening, only to self-correct by the end of the week.
(Related insight: Read, “Performing a holistic review of your operational FX hedging program”)
Initial jobless claims continued their downward trend, dropping to 444,000 and establishing a new low since the pandemic started in mid-March 2020. For context, the pre-pandemic record was 695,000, recorded in 2009, with pandemic highs totaling 6.1 million in April 2020. This continued decline comes along with news that more states, now a total of 22, have planned to opt out of weekly $300 supplemental federal unemployment benefits. For individuals in those states this would end the additional $300 weekly payments by mid-June or July, ahead of the current September expiration date.
The price of crude oil rose slightly throughout the week until it dropped by $2 per barrel on Wednesday. The drop was due to concerns over a slowdown in manufacturing caused by increasing COVID case numbers in Asian countries. Additional downward pressure was fueled by fears that recent increases in inflation expectations could cause the Fed to hike interest rates sooner than expected. Signs of those inflation expectations can be seen in the price of oil, corn and gasoline futures, each of which have doubled from a year ago with lumber more than tripling in price based on data provided to the Wall Street Journal.*
(Related insight: Read, "Using commodity collars to manage market volatility")
We will look to see how the market views the U.S. recovery when the consumer confidence index is released on Tuesday. That will be followed by core inflation numbers released on Friday.
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Transactions in over-the-counter derivatives (or “swaps”) have significant risks, including, but not limited to, substantial risk of loss. You should consult your own business, legal, tax and accounting advisers with respect to proposed swap transaction and you should refrain from entering into any swap transaction unless you have fully understood the terms and risks of the transaction, including the extent of your potential risk of loss. This material has been prepared by a sales or trading employee or agent of Chatham Hedging Advisors and could be deemed a solicitation for entering into a derivatives transaction. This material is not a research report prepared by Chatham Hedging Advisors. If you are not an experienced user of the derivatives markets, capable of making independent trading decisions, then you should not rely solely on this communication in making trading decisions. All rights reserved.21-0152
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