Market Overview

Jobless Claims Post Larger Than Expected Rise, Eyeing the FOMC

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Initial jobless claims rose more than expected in the week ending October 12, with initial claims printing at 388,000, well above the consensus estimate of 365,000 new claims. The rise in claims is being attributed to a statistical quirk which saw the previous week's reading drop unexpectedly.

At the release of the initial jobless claims, a spokesperson for the Labor Department said that the 339,000 reported last week, which was revised higher 342,000 this week, was extremely low because the typical pattern of large increases in unadjusted claims at the start of the quarter seems to have shifted by a week in one state, causing the adjusted data to become volatile.

S&P 500 futures slipped slightly on the news and traded down 3.9 points to 1,453.20 at 8:47 am EST. The yield on the 10-year U.S. Treasury bond slipped to 1.7956 percent and the EUR/USD reversed earlier gains to trade just above the 1.31 level. The weak jobless claims hindered the risk rally that began overnight with the stronger than expected Chinese economic data.

Markets now await the ending of meetings at the Eurogroup summit, where leaders are discussing various measures including the European banking union and regulator and the disbursement of the next tranche of the Greek bailout. Comments on the banking union will be interesting, as reports Wednesday highlighted a draft paper from lawyers at the European Central Bank, highlighting that housing such a regulator within the ECB could be against its mandate and thus illegal.

Aside from comments from the summit, investors can look forward to further clarity on the U.S. economy with the release of the Philadelphia Fed's Manufacturing Index as well as data on Chinese foreign direct investment due out late Thursday night, which is a good measure for foreign confidence in the strength of the Chinese economy. Friday brings economic data from Europe, with German PPI being reported and Italian industrial new orders and sales, the prior being a leading indicator for GDP growth, due out.

After the culmination of the European summit, all eyes will shift focus to the FOMC meeting next week, which will end on Wednesday with the interest rate decision and update of the QE3 program. It is interesting to note that, although the program has technically been in place for approximately one month, the Fed has yet to purchase any bonds under the QE3 program, or at least has yet to do enough to expand the money supply.

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