BoE to be non-event, more focus on US jobless claims

Good morning all,

• Traders focus on FOMC minutes ahead of Chinese data;

• China posts trade surplus but imports and exports tumble;

• FOMC minutes viewed as more dovish but that’s debatable;

• BoE to be non-event, more focus on US jobless claims.

We’re seeing another fine example of investors paying far too much attention to the Fed this morning and potentially not enough to other things that are happening in the markets. European futures are pointing to a fairly strong open this despite some poor trade figures from China and a claim by Premier Li Keqiang that right now, there are no plans to announce another stimulus package in a bid to hit its 7.5% growth target. As it stands the FTSE is seen opening 27 points higher, the CAC 16 points higher and the DAX 41 points higher.

In the past, traders have tended to pay a lot of attention to Chinese data, and rightly so given that it’s the world’s second largest economy. Not too long ago, trade figures like the ones released over night, showing a significant drop in both imports and exports, would have sent waves through the markets. Especially when partnered with claims by the Chinese Premier that the government is willing to be more flexible on growth, which suggests nothing will be done at the moment despite fears rising that the country will easily miss its 7.5% growth target. Some have even claimed the country is at risk of a hard landing, which could be disastrous.

I guess there’s a couple of ways the latter could be taken, the first being that the country has no chance of meeting growth expectations which may prompt many to lower their forecasts. The alternative, and probably the more likely scenario, is that markets are overreacting to every little piece of data, as it has on many occasions, and Li is confident that even if the 7.5% growth target is missed, it will only fall marginally short and therefore there is nothing to be concerned about.

One thing that may be offsetting the disappointment surrounding the trade figures is Li’s announcement that the country will open up its capital markets on a further level. Any talk of China opening up is always going to be well received by the markets even if it is just referring to Shanghai and Hong Kong on this occasion.

Clearly though, traders are paying far more attention to the FOMC minutes that were released last night and provided a late boost to US equity markets. To be honest, this looks like yet another example of traders reading far too much into the minutes and only seeing what they want to see. It seems the lack of a hawkish tone is therefore dovish which is a dangerous stance to take. The minutes did show that the Fed is concerned about inflation, but that is not new information and once there is less slack in the economy, inflation should rise. Instead, traders took this to mean inflation will remain low for longer which I doubt was the meaning behind it. The only noteworthy point from the minutes was in relation to the dot plot, which did cause quite a stir after the announcement a few weeks ago when it showed more members forecasting rates to rise earlier than before. However, Yellen already said in the press conference that we should not pay attention to this and the minutes supported this view.

Today is looking quite busy on the economic calendar but most of this is taken up with low-tier economic data which, despite being of interest, is unlikely to have much baring on the markets. Even the Bank of England rate decision is unlikely to have any impact whatsoever, with the central bank expected to leave interest rates and asset purchases unchanged and no statement expected alongside it. This makes the key releases today those from the US, most notably the weekly jobless claims number which is seen falling to 320,000. Many see this falling below 300,000 very soon although for this to happen we’ll have to see a pick-up in hiring. We haven’t seen a sub-300,000 number since 2006.