US Open – Jobless Claims and Inflation Eyed

European indices are trading higher in light trade on Thursday, as many market participants in Europe enjoy the bank holiday break while those that remain are seeing fewer market catalysts.

There has been no notable economic data released this morning and no reported developments in Greece. In this absence of new information, I think markets are taking the opportunity to lock in some profits and allow for a correction. US indices are similarly seen opening higher and I this should bring a big lift in trading volumes and newsflow, which will hopefully give the markets some direction.

There are a couple of pieces of data being released in the US today which should give investors something to react to. Jobless claims have been very low for a long time now, providing further evidence of the labour market recovery. Fewer layoffs and greater job creation is a good sign that the labour market and economy is strong as it creates an environment in which people feel secure in their jobs and even have the confidence to seek new opportunities. Higher wages naturally follow this and that is why I’m encouraged. It’s not perfect yet but we’re getting there.

One big challenge facing the economy is the recent trend of importing deflation. The US dollar is very strong at the moment and looser monetary policies from other central banks is simultaneously weakening their currencies. This makes goods foreign goods cheaper to US importers and consumers which has deflationary implications for the economy. For now it’s not a problem but the longer it continues, the bigger the threat it represents to consumer inflation expectations, at which point you start to see purchases being delayed. In an economy like the US, this would be very damaging.

Aside from the above, we’ll be looking for further developments in Greece, where negotiations are likely to continue for a couple of weeks. Greece is already dipping into emergency funds to honour its debt and that can’t last much longer. The rhetoric from Greek officials does appear to be softening but not enough. More concessions are needed and Greece does not have the kind of leverage it thinks it has. Eventually it’s going to have to accept a deal or default.

Bond markets could be key again today, especially in the lighter trade that we’re likely to see. Lower liquidity has been attributed to some of the big moves seen recently and it could be even thinner today.

The S&P is expected to open 8 points higher, the Dow 68 points higher and the Nasdaq 24 points higher.

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Craig Erlam
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the BBC and The Telegraph, and he also appears regularly as a guest commentator on Bloomberg TV, CNBC, FOX Business and BNN. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.