U.S. stocks gave some ground yesterday, after a jump in initial jobless claims reversed the job-market optimism that followed Wednesday’s ADP data.  Stocks did pare early-session losses, the broad market was down as much as 70 bps at the open but ended just 13 bps lower, as traders probably decided to chill and wait for this morning’s official numbers on July payrolls.

Action in the Treasury market was harsher than the tepid decline in stock indices; traders took cover in the safety of the government-bond market, pushing the yield on the two-year to a new low of 0.53% (this is pretty much saying: just give me my money back in two years) and the rate on the 10-year pulled back to 2.90% -- with the new low yield on the 2 and the 10 down about 5 bps to 2.90% you’d think stocks would have endured a substantial sell off, but then again making sense of things these days is about impossible.

Telecoms and consumer discretionary shares led the gainers.  Tech and financials were the worst-performing groups – six of the top 10 industry groups declined for the session.

In other news, the Bank of England and the ECB (euro-zone central bank) both left their benchmark interest rates unchanged at record-low levels yesterday, as expected.  Certainly for the ECB, they won’t be hiking the rate anytime soon, and probably no time before 2012.  What you watch for is not what they do on rates right here, but their bank liquidity policy, which currently offers European banks unlimited borrowing for periods of seven days, one month and three months.  The seven day and one-month liquidity facilities expire in October and the three-month facility expires next month.  If they extend these programs it will show that inter-bank lending remains troubled, banks remain heavily dependent on the central bank, and thus things remain far from normal in the euro zone.  Indeed, it’s tough to find normal anywhere.

Market Activity for August 5, 2010

Jobless Claims

The Labor Department reported that initial jobless claims bounced back to 479K as they rose 19,000 for the week ended July 31 – claims were expected to fall to 455K.  If there’s any momentum in the job market, it’s not much.  The four-week average rose 5,250 to 458,500.

So the four-week average has remained stuck at 450K or above for two full years now; the previous record was the 20 months that ended June 1983.  When that streak came to an end, initial claims slid through that 450K mark to 400K within a month and all the way down to 340K within 10 months.  This time, we remain stuck at 450K, after falling from the financial-crisis peak, unable to move below for four months now.

Continuing claims were mixed.  The standard issue (those that last the first 26 weeks) fell 34,000 to 45.75 million – this figure peaked at 6.5 million in June 2009 but has been mired at the current level for a couple of months now.  EUC claims, the emergency extensions that brought prolonged benefits for up to 99 weeks, rose 257,000 to 3.9 million – the first increase in 12 weeks. 

What we’re seeing in EUC claims is that the previous 12-week decline was due to the expiration of those benefits back in late March.  Now that Congress has renewed these extensions to November, they are back on the rise.   Extending them to November…how quaint. 

ICSC Chain Store Sales

The International Council of Shopping Centers (ICSC) reported that same store sales across the industries they track rose 2.8% from the year-ago period – a bit shy of the 3.0% increase expected. 

Luxury and wholesale clubs led the way in July. Luxury-store sales increased 7.4%, this was the hardest hit area a year ago.  Wholesale clubs were next with sales up 5.6% (up 3.8% excluding fuel sales) -- with these two segments, at the opposite ends of the spectrum, leading the way it shows the dichotomy going on in consumer land; the high-end has unleashed some pent up demand, while the majority of consumers focus on necessities and price points. 

Beyond that, department-store sales gained 3.9%; apparel was up 3.6%; traditional discount increased 2.0%; drug-store sales were flat.

Have a great day!