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LIVE MARKETS-Sky-high jobless claims begin preparations for landing

Thu, 25th Mar 2021 14:48

* Major U.S. indexes decline; small caps underperform

* Energy weakest major S&P sector; defensives outperform

* Euro STOXX 600 index falls ~0.6%

* Dollar, gold edge up; crude down ~5%

* U.S. 10-year Treasury yield ~1.61%

March 25 - Welcome to the home for real-time coverage of
markets brought to you by Reuters reporters. You can share your
thoughts with us at markets.research@thomsonreuters.com

SKY-HIGH JOBLESS CLAIMS BEGIN PREPARATIONS FOR LANDING (1045
EDT/1445 GMT)

Jobless claims are edging down from the stratosphere and the
U.S. economic recovery has a bit more coal in its furnace than
previously reported, according to data released on Thursday.

The number of U.S. workers filing new claims for
unemployment benefits dropped more than expected
last week to 684,000, according to the Labor Department, the
lowest level in over a year.

"It was a year ago this week that the economic carnage of
the COVID pandemic started to become clear," writes Sarah House,
senior economist at Wells Fargo Securities. "Initial weekly
filings for unemployment shot up to 3.31 million, five times the
level of the worst week in the Great Recession."

And claims have remained above that level - 665,000 - for
over a year as economic pressures continue to weigh.

"We're guessing that each week sees some firms either
downsizing further or throwing in the towel, unable to hang on
until the economy reopens," says Ian Shepherdson, chief
economist at Pantheon Macroeconomics.

Claims indeed remain elevated but the report suggests fiscal
aid and vaccine deployment are helping the labor market edge
back to normal, a year after shutdowns to contain the pandemic
caused 22 million American jobs to evaporate nearly overnight.

"This gradual attrition should not last much longer,"
Shepherdson adds. "We expect claims to fall sharply as the
economy reopens fully across the second quarter."

Continuing claims, reported on a one-week lag,
dipped to 3.87 million, falling below 4 million for the first
time since late March 2020.

The Commerce Department had more data on offer with its
final, upwardly revised take on GDP for the fourth quarter
, which took its bow nearly three months ago.

The U.S. economy expanded at a 4.3% quarterly annualized
rate in the October to December period, a 0.2 percentage point
upgrade from the previously reported 4.1%.

Many analysts see better days to come.

"This year, the economy is poised to see the fastest rate of
real GDP growth since the early 1980s as improving health
conditions, expanding vaccine distribution, and generous fiscal
stimulus will form a powerful growth cocktail," says Lydia
Boussour, lead U.S. economist at Oxford Economics. "After a 3.5%
contraction in 2020, we foresee the economy expanding 7% in 2021
with annualized growth averaging close to 10% in the spring and
summer."

Among contributors, readings increased for inventories,
investments and exports, but were revised lower for spending on
structures, equipment and most worryingly, on the part of the
consumer.

More recent data on expenditures by consumers - who
contribute about 70% of U.S. economic growth - is due from the
Commerce Department on Friday.

Stocks are churning lower in late morning trading, as value
and growth stocks vie for leadership and increased quarter-end
demand for government debt is drawing investors away from
equities.

All three major stock indexes are lower.

(Stephen Culp)

*****

BACK TO BONDS: REBALANCING SEEN ADDING TO THE PAIN (1000
EDT/1400 GMT)

Rising COVID-19 cases have surely been a dampener on the
euphoria that has boosted stocks so far this year, but it also
seems that an early month-end rebalancing is making things look
worse.

So while stocks are sold globally with both the STOXX
in Europe and the S&P 500 falling to around
2-week lows, pressure on bond prices is easing and yields have
fallen further from recent peaks.

"There is mention that early month end rebalancing flows
could be seeing some reallocation from equities to bonds,"
writes Rabobank strategist Richard McGuire in his daily note.

For Giuseppe Sersale, fund manager at Anthilia, the
pull-back looks more like a "physiological" bout of profit
taking but admits a portfolio rebalancing could be in play too
after the big outperformance of stocks relative to bonds.

"The end of the quarter with its related rebalancing of
flows is approaching and that perhaps is helping give relief to
bond prices," he says.

Meantime, Axi strategist Stephen Innes recalls that some
estimates predict there will be as much as $88.5 billion of
month-end rebalancing out of equities and into U.S. bonds.

(Danilo Masoni)

*****

U.S. STOCKS FALL EARLY; ENERGY A DRAG (0940 EDT/1340 GMT)

U.S. stocks are lower in early New York trading on Thursday,
with energy and industrials among the biggest drags on the S&P
500.

Investors also assessed data showing jobless claims fell
last week as the labor market continued to limp out of a
coronavirus-induced recession.

The energy index is down more than 2%, with oil
prices falling sharply.

Nike shares are down. Nike and Adidas
came under fire on Chinese social media on Thursday after
Beijing's propaganda offensive against Swedish fashion brand H&M
sparked by the company's expression of concern about
labour conditions in Xinjiang.

Here is the early U.S. market snapshot:

(Caroline Valetkevitch)

*****

SMALL CAPS: TOSSED AROUND (0900 EDT/1300 GMT)

The small-cap Russell 2000 is suddenly taking its
lumps. Indeed, the RUT has tumbled about 10% in just 7 trading
days, and is threatening to end a 5-month win streak.

Of note, the small-cap index flirted with a long-scale
monthly channel resistance line in February, as well as earlier
this month, and both times it has been swatted away:

On Feb. 10, the RUT reached as high as 2,318, putting it
just 1% shy of the channel barrier around 2,345. The index then
sold off as much as 10% in 16 trading days. And then on March
15, with its 2,360 high, it nearly tagged the line now residing
around 2,365. This more recent 10% slide has been accomplished
in less than half the time.

Meanwhile, over the past year, the RUT enjoyed a massive
snapback in relative performance vs the large-cap Dow Jones
Industrial Average. After falling to a 17-year low in
March 2020, the RUT/DJI ratio rose to 6-year high at 7.12% in
February.

Of note, since 1988, this ratio has struggled much beyond
7.0%, with its highs between 7.12% and 7.25%. Additionally, a
broken support line from 1999, which is now resistance, was
another hurdle coinciding with levels just over 7%.

Therefore, recently, the RUT appeared to be at an important
juncture as it attempted to continue its advance, while
sustaining its outperformance vs the large-cap Dow.

Now, in less than a month, the RUT has essentially suffered
two 10% corrections, and the RUT/DJI ratio is on pace for its
biggest monthly percentage fall in a year.

Given its recent leadership role, a greater RUT downturn,
both in itself, and on a relative basis, may coincide with
increasing overall market instability.

(Terence Gabriel)

*****

FOR THURSDAY'S LIVE MARKETS' POSTS PRIOR TO 0900 EDT/1300
GMT - CLICK HERE:

(Terence Gabriel is a Reuters market analyst. The views
expressed are his own)

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