U.S. Trade Gap unchanged, US-China deficit at record high

Treasury prices are moving higher in reaction to this morning’s economic releases which showed slightly better than expected readings in the weekly claims report. The 2-year Treasury note has gained 1/32 to yield 0.28% while the 5-year note is 11/32 higher and yielding 1.075%. The benchmark 10-year note is currently trading 18/32 higher to yield 2.145% while the long bond has risen 1 and 3/32 points to yield 3.14%. The Fed Minutes for the Sept 20-21 meeting were released yesterday bringing some clarity to the Federal Reserve’s decision to engage in “operation twist”. The minutes showed a growing disparity of opinion among Fed officials as two of the ten voting members pressed for bolder action in order to boost the economy. On the other hand, the final decision to reallocate the Fed’s portfolio was met with another round of opposition by three Fed officials. Overall, the Fed was concerned with a deterioration of the economic landscape while still ruling out a recession.  According to the report, some of the external factors that could undermine growth would be a more conservative fiscal policy in the U.S. as well as worsening conditions in Europe.

The Fed’s chosen policy action was to support “a program under which the Committee would announce its intention to purchase, by the end of June 2012, $400 billion of Treasury securities with remaining maturities of 6 years to 30 years and to sell an equal amount of Treasury securities with remaining maturities of 3 years or less. They expected this program to put downward pressure on longer-term interest rates and to help make broader financial conditions more accommodative…Two members said that current conditions and the outlook could justify stronger policy action, but they supported undertaking the maturity extension program at this meeting as it did not rule out additional steps at future meetings. Three members concluded that additional accommodation was not appropriate at this time. ” FOMC Minutes Sep 20-21, 2011

Providing slightly better news on the labor market, this morning’s release of the Initial Jobless Claims report by the Department of Labor showed that first time claims declined only 1,000 to 404,000; analysts were expecting claims to increase to 405,000. Additionally, the more stable 4-week average number of initial claims dropped by 7,000 to 408,000 versus the 415,000 number registered previously. Continuing Claims also dropped versus the previous week.  Analysts were expecting a slight decline to 3.710 million but instead it dropped below the 3.700 million mark to 3.670 million. Meanwhile, the previous week was upwardly revised by 25,000 to 3.725 million. This morning also brings the release of the Commerce Department’s U.S. Trade Balance. According to the announcement, the trade gap remained the same between July and August of this year at -$45.6 billion. Breaking down the data we see that Imports remained basically flat at $223.22 billion in part due to increases in industrial supplies (+1.40%), pharmaceuticals (+1.70%) and crude oil (+6.80%). In addition, the steady level of Exports ($177.61 billion) can also be attributed to an increase in industrial supplies (+1.80%), consumer goods (+1.70%), food and beverages (+2.20%) and sales of civilian aircrafts (+8.70%).  Meanwhile, the U.S. – China trade deficit reached a new month high at $29 billion. So far the deficit with that country has been 9.00% higher versus the same period in 2010.