Chinese trade balance figures disappoint

Good morning,

• US futures tumble following similarly weak European session;

• Dovish Fed ensures stocks will remain high in the coming months;

• Chinese trade balance figures disappoint.

• Weekly jobless claims in focus.

Another negative European session is also weighing on risk appetite in the US ahead of the opening bell on Wednesday, with the S&P seen opening 17 points lower, the Dow 142 points lower and the Nasdaq 36 points lower.

This comes following a fairly positive US session on Wednesday, where investors were boosted by the dovish tone of the Fed minutes. Despite US economic data dramatically improving in the second quarter and the outlook being equally as positive, the Fed maintained its dovish stance claiming rates will remain near zero for a considerable time after the end of its quantitative easing program.

This is exactly what investors wanted to hear and what they had been banking on during the entire period of strong numbers. When investors begin to price in tighter policy, we can see a more negative response in equity and bond markets to strong data but last Thursday’s incredible jobs report prompted none of that. Investors instead cheered the results and stocks soared to record highs. With the Fed maintaining this dovish stance on rates, this may continue in the coming months.

That doesn’t appear to have provided much comfort today though, with investors currently adopting a more risk averse stance. The inability for the Dow to hold above 17,000 on Wednesday or the S&P to break through 2,000 may be seen as a red flag among investors that we’re not yet ready for that next leg higher and as a result, we’re going to see profit taking near these levels for now.

One of the things weighing on sentiment this morning has been the Chinese trade balance figures overnight, which fell short of expectations due to lower exports. The slowdown in the eurozone recovery could be responsible for a portion of this, with figures this morning acting as a further reminder that while things may be better than they have been in the past, there is still a long hard road ahead. Industrial production figures for Italy and France showed a significant decline in May despite expectations for a small rise.

As we near the end of a fairly quiet week on the economic calendar, there is a couple of important economic readings scheduled for release today. In particular, weekly jobless claims which have been a consistent strong point for the US this year. Again, we’re expecting another good reading, 316,000, which further supports the view that the US is well on its way to a strong recovery this year.