The Day Ahead: Financial Reform, Trade Balance, Treasury Budget, Jobless Claims, Bond Auction
Stocks are likely to open sharply higher this morning as a strong global session, China excluded, leads the way into positive territory.
Ninety minutes before the opening bell, S&P 500 futures are up 10 points to 1,065.50 and the Dow futures contract is +73 at 9976. The 2-year Treasury note yield is 2 basis points higher at 0.746% and the benchmark 10-year note yield is 3.3 basis points higher at 3.211%.
NYMEX crude oil futures are +41 cents at $74.49 per contract while Gold is down $3.90 to $1,226.00.
Stocks in China fell 0.82% today despite strong data indicating that its trade surplus expanded to $19.5 billion in May. Exports surged 48.5% versus May 2009 and imports rose 48.3%. Also, exports to the EU were up 49.7%.
But stocks elsewhere rallied: Taiwan share jumped 1.56%, Japan’s Nikkei climbed 1.10%, shares in India’s BSE Senses closed 1.59% higher, and France’s CAC-40 posted a 0.84% gain.
Along with global equities, major currencies climbed overnight, sending the US dollar index down for the third straight day to 87.49 after hitting a 15-month high on Monday, according to economists at BMO.
The Day Ahead:
8:30 ― The monthly deficit in the Trade Balance is expected to narrow ever so slightly in April. The average prediction among economists is a $40.0 billion gap, down from $40.4 billion in March; estimates range from $37.5 billion to $42 billion. In recent months, imports and exports have each been advancing, but imports have outpaced exports, in part due to petroleum prices, causing a wider deficit. That trend could change somewhat in April, as export volume is anticipated to be healthy, and import prices should be lower thanks the strength of the greenback.
“Aircraft exports were unusually low in March, while aircraft imports were unusually high, and we expect corrections this month that will help narrow the overall deficit,” said economists at IHS Global Insight. “In coming months, lower oil prices should help to bring the deficit down further, but in volume terms we think that import growth will be outpacing export growth as the swing in the U.S. inventory cycle sucks in imports, and that trade will be a drag on growth for the rest of the year.”
8:30 ― Initial Jobless Claims averaged 456k per week in May, lower than the 463k average in April but higher than the 448k average in March. For the first week of June, economists are predicting 453k new claims, or 53k above the level needed to indicate clear growth in the jobs market.
“It’s a slow grind, but the U.S. labor market is improving,” said economists at BMO. They predicted that continuing claims, a tally of those still receiving unemployment benefits, will decrease 26k to 4.640 million for the final week of May.
“The downtrend in initial jobless claims has stalled at around 450,000 ― a level historically consistent with large job losses,” said economists at Nomura Global Economics. “In today's labor market, however, we believe this level of claims is consistent with positive payroll growth. We expect the improvement in claims to remain very slow.”
2:00 ― The Treasury’s Budget Statement in May has averaged a deficit of $76.6 billion over the past 10 years and $100.3 billion over the past 5 years, according to Bloomberg News. For May 2010, economists predict a deficit of $140.0 billion, following a $82.7 billion gap in April.
Economists at Nomura predict an even worse budget deficit of $158 billion in the month, but note that even that is lower than May 2009’s $190 billion gap.
“Although outlays remain very high, daily tax receipt data from the Treasury suggest that revenues are improving,” they wrote. “Another cut in its debt issuance sizes for this week suggests the government is becoming increasingly confident about its ability to finance spending needs.”
Financial Reform discussions will resume today in a Congressional Conference Committee, chaired by House Rep. Barney Frank. HERE is a preview from Reuters.
Treasury Auctions:
- 1:00 ― $13 billion 30-Year Bonds