Portugal`s Sovereign Yield Hits New Records; U.S. Jobless Claims Fall

Weekly jobless claims data is out as usual today, and the 36,000 strong fall from last week`s revised number has been taken with great excitement and optimism by the commentators, although the U.S. Market has not been very aggressive yet in its response, perhaps waiting for the NFP release. The idea is that we are really seeing the beginning of the end for the rise of unemployment, with the Fed`s stimulus finally working to generate some self-sustaining momentum in the private sector. Yet the number seems like a little abnormality, a spike that doesn`t seem to be strongly correlated with the improvement in the 4-week average which is still holding firmly above the 400, 000 level.

Regardless of the immediate outlook for the labor market though, it is hard to see how much worse the numbers can get because the wider measures of unemployment that factor in those who are not counted in the headline number are already deep in the double digits, and it does appear like by and large the large froth in the market has been eliminated since 2005. That doesn`t mean that employment figures will allow us a sharp and sudden improvement any time soon, and as Bernanke says, recovery is likely to be slow and protracted. But it does look like the U.S. has had it share of labor market troubles – it is now the turn of others, especially those in emerging markets who have not at all been punished for their role in the bubbles of the past decade. They go on as they did before the crisis, and that for us means that they are still waiting for their part of the pain when the market finally decides to deflate their bubbles. They may have some time before it happens, but at least the U.S. is not the focus when the crisis arrives.

We also note the strange rise in the yield of Portugal`s five and ten year debt, even as the market remains in a bullish mood. The speculation is that the Portuguese government has been reaching out to more aggressive segments of the market in order to sell its junk, preferring the shorter-term at possibly lower yields. It seems that this attempt is failing as the fast speculators seem to be buying goverment debt only to sell it shortly afterwards for quick profits, increasing supply at a time when there are no obvious buyers. It is a sign of the times that the government is looking for saviors among the wolves and jackals of the hedge fund world and its various arms (or maybe tentacles?).

Up until the release of today`s jobless claims data, markets were in a weak mood, arguably because they have been so bullish over the past weeks that they need to take a break and refresh before taking the next leg higher. There is no shortage of reasons for worry, but traders are for now willing to take the risks as long as the general sentiment remains upbeat.