Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
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This is the most important U.S. data this week
Christopher Dembik
Head of Macroeconomic Research
Summary: Today at 12:30 GMT, weekly U.S. jobless claims data will be released for the week ending March 21. It is the most important U.S. statistics this week as it will give an early indication of how much the COVID-19 outbreak is damaging the economy and the job market.
Estimates of jobless claims range from around 1 million to 4 million for the previous week, which has never been seen in modern history.
Comment
U.S. jobless claims will be one of the most important macroeconomic market movers this week. It will give us an early indication of how much the COVID-19 outbreak is hurting the economy and the labor market as it will refer to the first week when social distancing and lockdown measures have been implemented. Many states have already reported a sharp increase in layoffs, especially in the service sector (notably in the food and accommodation industries). The wide range of estimates, from around 1 million to 4 million, show that we lack historical references to really understand the impact of this unique and probably massive crisis hitting the economy. The previous record was just a little under 700,000 in 1982 when the United States was going through the recession caused by the Fed’s contractionary monetary policy. In less than two weeks, we have moved from full employment to a number of job destruction we have never experienced in a period of peace.
What is even worse is that today’s figure might misrepresent the real scale of jobless claims. An undefined number of claims went unreported as states’ unemployment insurance program offices were overwhelmed by the massive number of applications both by phone and online. Some states even informed that their phone lines was saturated and their website crashed due to high demand, possibly pushing some claims into next week. In other words, the worse is yet to come for the labor market.
Following St. Louis Fed chief James Bullard and Treasury Secretary Steven Mnuchin warnings, we already know that unemployment is doomed to skyrocket in the coming months, and could reach a double-digit figure around 20% or even 30%. It means that the flow of bad news is just starting, and that tens of millions of layoffs are about to be reported. Any number in the low range estimate (around 1 million) could be a good surprise (I would have never expected to write that in my lifetime!) and be a relief for the stock market. On the contrary, any number in the high range estimate will left investors utterly shocked and will contribute to reinforce risk aversion in the equity market.
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