Instant View: Weekly jobless claims fall relieves recession-wary markets

(Reuters) - A drop in the number of Americans applying for unemployment benefits last week relieved markets that had been in a near panic about prospects for a recession and how aggressive the Federal Reserve would have to be in easing policy. 

Initial claims for state unemployment benefits fell 17,000 to a seasonally adjusted 233,000 for the week ended Aug. 3, the Labor Department said on Thursday, the largest drop in about 11 months. Economists polled by Reuters had forecast 240,000 claims for the latest week. The data suggested fears the labor market is unraveling were overblown and the gradual softening in the labor market remains intact.

The government's monthly nonfarm payrolls report on Friday showed job gains slowed markedly in July and the unemployment rate rose to 4.3%, raising fears in markets that the labor market may be deteriorating at a pace that would call for strong action from the Fed.

MARKET REACTION:

STOCKS: S&P 500 E-minis extended gains and were up 0.76%BONDS: The yield on benchmark U.S. 10-year notes rose to 3.99%, the two-year note yield jumped to 4.044% FOREX: The dollar index turned 0.27% higher 

COMMENTS: 

PAUL NOLTE, SENIOR WEALTH ADVISOR AND MARKET STRATEGIST, MURPHY & SYLVEST, ELMHURST, ILLINOIS

"The numbers are pretty much in line with what we've been thinking. The non-seasonally adjusted numbers on a year-over-year basis are right in line with where they were in 2016, '17, '18, '19 - prior to the pandemic, within one or two thousand. The labor market at that point was fairly strong. So our reading on this is the labor market continues to be OK... I think the recession fears at this point are probably a little overblown."

GENNADIY GOLDBERG, HEAD OF U.S. RATES STRATEGY, TD SECURITIES, NEW YORK

“I do think this is a very positive print for markets overall. It reinforces the fact that labor market momentum is not slowing to the same extent that was represented by the payroll report, and it also reinforces the absence of very significant layoffs in the economy as well. What it confirms is that we're seeing the unemployment rate rise due to new entrants into the labor force rather than a very large amount of layoffs.”

“For markets it's fairly encouraging. We'll see if that's enough, obviously. I think that we'll always want more, but I suspect that in the absence of data to the contrary, we'll continue to see the pricing for September rate cuts decline, and yields move higher across the curve.”

WASIF LATIF, PRESIDENT AND CHIEF INVESTMENT OFFICER, SARMAYA PARTNERS, PRINCETON, NEW JERSEY

“Jobless claims are less than what was expected and so the markets seemed to be rejoicing. At least the bulls in the market are rejoicing that the horse may have passed and this might be a sign of a soft landing. This is not a huge impactful number because the big number is going to be the actual unemployment rate that we saw this past Friday and the one we’re going to get month. This is a single data point and the market, especially the momentum traders and algos, they’re probably grasping onto it and running with it.”

THOMAS HAYES, CHAIRMAN, GREAT HILL CAPITAL LLC, NEW YORK

"Since the jobs report on Friday, everyone's been nervous about a recession with the Sahm Rule triggered. The initial jobless claims came in lower than expected, alleviating some of the fear that the labor market was completely rolling over."

"We have a reasonably robust economy and not an imminent recession, so we can wait a few more weeks for that final first cut from the Fed."

IAN LYNGEN, HEAD OF US RATES STRATEGY, BMO CAPITAL MARKETS (emailed note)

"The drop in initial filings was larger-than-anticipated and the resulting price action suggests the update is being interpreted as evidence that the labor market remains on solid footing despite the July BLS report. Overall, the lack of information suggesting a further deterioration of the employment landscape was the most relevant takeaway from the final data release of the week."

MARC CHANDLER, CHIEF MARKET STRATEGIST, BANNOCKBURN GLOBAL FOREX, NEW YORK

“When it comes to the labor market, it's multi-dimensional. There's not one number. And so I think that the weekly jobless claims is one of those numbers. Today is a little bit softer, I think, than people expected, but the four-week moving average still moves higher.”

“The talk of an imminent recession seems wide of the mark.”

(Compiled by the Global Finance & Markets Breaking News team)