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Huge Risk-off Flows After (Another) Record-breaking Rise in US Jobless Claims



US Weekly Initial Jobless Claims (IJC) data for the week starting 22nd of March and ending 28th of March showed another record-breaking rise, with 6.643mln claiming unemployment benefits for the first time. 


This was over double last week’s (also record-breaking at the time) rise of 3.283mln, meaning that in the last two weeks, over 10mln Americans have been made unemployed. And that only counts those who have lost their jobs up until the 28th of March. Seeing as it is the 2nd of April today, perhaps another 5mln will have lost their jobs already since the end of the last data collection period. 


All in all, US unemployment is rising at a record pace, and at a much faster pace than that anticipated by the market. 


Hence, the reaction that we saw today was primarily one of risk-off, as traders & investors, shocked by the data, fled out of risk assets such as stocks into havens. 



Market Reaction


The much larger than expected IJC number prompted risk assets to come under pressure; global equity indices have fallen across the board, with S&P 500 futures falling more than 60 points at the time of writing. Risk sensitive FX has also been pressured; AUDUSD fell roughly 60 pips to around 0.6020 from 0.6080, with a similar-sized move lower being seen in NZD and CAD. Meanwhile, crude markets have also been on the back foot in recent trade. 


All the while, havens have been picking up. Flows into JPY have increased, as investors revise higher the expected hit that worldwide lockdowns are having on the global economy. USD has been rising for the same reason. As the world’s reserve currency, USD will always have some safe-haven properties. Should we return to the “sell everything” mentality of a few weeks ago, USD could catch a big yet again. 


This reaction in USD is a stark contrast to the way it reacted to IJC data last week. A week ago, USD weakened as traders bet on more dovish Fed action. Stocks also rose, for the same reason. 


Clearly then, the market’s mentality has shifted. Bad data is bad data again, and that is not going to bode well for risk assets going forward, especially as more global employment data comes out in the coming weeks.


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