Jobless claims in focus as BoE leaves policy unchanged

Jobless claims in focus as BoE leaves policy unchanged

By Craig Erlam on Oct 10, 2014 08:15:46 GMT

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  • Fear driven markets may signal imminent correction;
  • Alcoa gets earnings season off to a flyer;
  • Four sub-300,000 claims not seen since 2006;
  • BoE expected to leave policy unchanged.

We’re expecting another positive start to the trading session in the US on Thursday, following the strong gains made on Wednesday after the Fed maintained its dovish stance on interest rates.

There’s a lot of fear in the markets at the moment and it’s all centred around the Federal Reserve, when it will raise interest rates and the pace of hikes after the first one takes place. That fear is leading to some irrational moves in the markets which concerns me given that it’s occurring at these record high levels. Investors are clearly quite uncomfortable with current valuations and are hitting the panic button at the first sign of trouble, for example on Tuesday after the IMF revised down its global growth forecasts.

The Fed is very aware of this which is why it opted to maintain its commitment to keep rates low for a considerable amount of time. At some point this language will have to be removed and when it does, it could prompt a significant correction. What we need now to calm the nerves is a very good earnings season, something that shows us that we don’t need Fed stimulus to justify current valuation, that companies are performing well and things are only going to get better.

Alcoa got things off to a great start on Wednesday evening but they are not considered the bellwether they once were. What they did show though is that all of the cost cutting pain of recent years was not for nothing and the company is now in a great position going forward. That is the message we need to get from the rest of earnings season and if we can see companies beating on both earnings and revenue expectations while keeping profit warnings to a minimum, it may be enough to ease investors’ concerns about interest rate hikes.

Today is shaping up to be a fairly quiet day with not much due on the data side of things. The only notable release is the weekly jobless claims number which is expected to rise slightly to 294,000. This would mark a fourth consecutive week of sub 300,000 claims which would be the first time since the start of 2006. Needless to say that says a lot about the progress made in the US over the last 12 months and further suggests that the economy no longer needs such an accommodative central bank.

We’ll also get the latest monetary policy update from the Bank of England before the open, although no change is expected in either interest rates or asset purchases. The fact that the BoE doesn’t release a statement or follow up with a press conference, this tends to make it something of a non-event despite it having the potential to cause major ripples in the markets.

The S&P is currently seen opening 5 points higher, the Dow 27 points higher and the Nasdaq 13 points higher.

About Craig Erlam

Craig Erlam is Market Analyst at Alpari UK. He joined Alpari (UK) at the beginning of 2012 after four years in the financial services industry, including working at Goldman Sachs. Craig writes market commentary that regularly appears on websites including The Financial Times, Reuters, BBC, The Telegraph and FOX Business. He also provides insight and analysis for clients which he posts daily on Twitter, Google+ and the Alpari (UK) website. You can also find Craig on YouTube where he gives short market updates, including charting analysis.

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