This morning’s dramatically positive Jobless Claims data may do little to cheer the market today, as investors will likely see it as lowering the odds of further monetary stimulus from the Fed in the coming days. But it is nevertheless a very positive reading as it runs counter to the economy-is-losing-momentum narrative and could change the tone of market discourse if sustained over the next few weeks.

Initial Claims dropped 26K last week to 350K, the lowest level in more than three years. The four-week average, which smoothes out the week-to-week volatility, dropped by 9.8 to 376K.5. Jobless Claims at this level would be consistent with monthly job gains much better than what we have been seeing in the last few months.

The market didn’t see much evidence of more QE from the Fed in the minutes yesterday, but the overall tone of the release seemed to be quite dovish. My sense is that the Fed needs to be seen as ‘doing something’ should the economy continue to weaken. Notwithstanding this positive Jobless Claims reading, the overall trend line of economic reports has lately been to the down side.

And by the time the FOMC meets again in August, we will have seenthe July non-farm payroll report and the second quarter GDP reading. The GDP report will most likely show quarterly growth less than the first quarter’s 1.9% pace. I would think that the possibility of a QE announcement in the August meeting will increase significantly if the July jobs reports is along the same lines as the last few readings.

Today’s Jobless Claims report may not be enough to change the debate entirely. But a few more weekly readings along these lines could materially change the environment.

Do you agree?