The Day Ahead: Jobless Claims, Trade Balance, $13 Billion 30s

Broad losses in overseas markets have U.S. equity futures on edge this morning, while interest rates are slightly higher,  the US dollar is moving up  and commodity prices wane.

After China posted a surprise trade deficit and Moody's dropped Spain's credit rating by one notch to Aa2, shares in Japan fell 1.46%, while those in Hong Kong and China fell 0.82% and 1.50%, respectively. In Europe, London's FTSE 100 is currently down 1.07%. In Germany the Dax is -0.75% and in Paris the CAC is trading 0.58% lower.  In the U.S., S&P 500 futures are 4.0 points lower at 1,311.50 and Dow futures are trading 18 points lower at 12,156. Both indexes ended Wednesday flat after jumping about 1% Tuesday.

Commodity prices moved lower overnight as well. Light crude is down 1.65% to $102.6 per barrel. Gold prices are -0.82% at 1417.06.

The US$ index is up for the third day of the last four after hitting a four-month low on Friday, according to BMO Capital Markets. "Risk aversion prompting US$ buying has weakened nearly every currency on the board," they noted.

The flight to safety isn't adding much steam to yesterday's post-auction bond market rally though. The benchmark 10-year Treasury yield firmed seven basis points Wednesday to yield 3.47% at the close. Overnight it strengthened further to 3.46%, while the 2-year firmed to 0.69%.  Currently the benchmark 10-year note is -1/32 at 101-08 yielding 3.475%. The FNCL 4.5 is -2/32 at 101-20.

Moody's downgraded Spain in the expectation that recapitalizing the banking sector will exceed the government's €20 billion estimate, BMO said.

"The euro, which suspiciously weakened ahead of the announcement, had little reaction, while Spanish bond yields are flat at the long end and actually lower at the short end," they added. "The cut puts Moody's rating to the same level where S&P has had it for two year." 

Key Events Today:

8:30 - The first Trade Balance report of 2011 is anticipated to show a monthly deficit of $41 billion. That's slightly wider than the $40.6 billion reported in December and the $38.3 billion gap in November. Surging oil prices are the culprit, as the benchmark global price jumped 6% in the month, according to BMO. They point out that agricultural prices should lift the value of U.S. exports, but while exports are anticipated to increase, the pace won't be as quick as imports.

"This will be the largest trade shortfall in four months and it's only going to get worse in February, with global oil prices increasing nearly another 6% - 40% y/y," BMO said, predicting a deficit of $41.7 billion.

Economists at IHS Global Insight added that non-oil imports should push higher as U.S. firms seek to re-stock after strong sales in the fourth quarter. 

"For the first quarter of 2011, strong export growth should be offset by a rebound in imports, making foreign trade roughly neutral for growth," they said.

8:30 - Jobless Claims are anticipated to rise in the first week of March, but the four-week average is indicative of broad growth in the labor market. The consensus call is for 385k new claims, versus 368k the week before. Claims fell 20k in the last report - far more than predictions and the lowest number since late May 2008. Even the most pessimistic predictions are at 400k, a number that doesn't look bad at all compared to previous months.

"With claims below 400k for the third time in four weeks, the 4-week average fell to 388.5k, the lowest since early July 2008," said economists at Nomura Global Economics. "We expect claims to continue their downtrend."

10:00 - The Federal Deposit Insurance Corporation (FDIC) will host a half-day symposium - "Don't Bet the Farm: Assessing the Boom in U.S. Farmland Prices" - to discuss issues associated with escalating farmland values over the previous decade.  In announcing the symposium, FDIC Chairman Sheila C. Bair said, "Farmland values have doubled on average in the past ten years, and continue to rise in an environment of ample liquidity and low interest rates. While we see strong fundamentals in the farm sector at present, the sector remains vulnerable to a reversal of market conditions or a rise in interest rates. The lending and borrowing decisions made now, when collateral values are high, will shape credit performance down the road.

1:00 - Treasury will auction $13 billion 30-year bonds (reopening)

2:00 - The New York Federal Reserve's Trading Desk will release an approximate purchase amount and tentative outright Treasury operation schedule.

2:00 - The Treasury's Budget Statement for February could represent the biggest monthly deficit of all-time. The consensus forecast looks for a gap of $225 billion, or roughly 4.5x the budget deficit in January. The current record of $221 billion comes from last February, which it typically the worst month for government finances, according to BMO.

The Federal Reserve's Consumer Advisory Council meets to discuss foreclosure issues; neighborhood stabilization and real estate owned (REO) issues; proposed rules regarding debit card interchange fees and routing and other agenda.