It was a quiet trading day on Monday with the lack of important economic data and cautiousness ahead of the FOMC meeting. Wall Street ended the day with mild gains with the DJIA and the S&P 500 adding +0.29% and +0.02% respectively. The US dollar fell before FOMC meets as the Fed Chairman Ben Bernanke remained concerned about the US employment conditions. Yet, the generally positive tone of recent data signaled that the chance of further quantitative easing has lowered. In the commodity sector, both crude oil and gold slipped, amid concerns over the slowdown of Chinese economy. The surprisingly high deficit data was of great worries.
As the economic calendar was light as the week started, the focus was still on the Chinese economic outlook. While market sentiment was damped by Premier Wen Jiabao's announcement that the country's annual GDP would be reduced to +7.5% this year, down from +8.0% or above over the past 8 years, more negative news was received with inflation and trade data disappointing the market. China unexpectedly posted a trade deficit of US$31.48B in February, following a surplus of US$27.28B a month ago. The deficit size was the largest in 22 years. Exports rose +18.4% y/y in February after a -0.5% dip in January while imports soared +39.6% from a year earlier, compared with a -15.3% decline in January.
As far as other Chinese data is concerned, it gave a rather mixed picture of the country's growth outlook. Headline CPI moderated to +3.2% y/y in February, from +4.5% in the prior month, as driven by the significant deceleration of food prices. While inflation weakened, fixed asset investment growth came in at +21.5% y/y in the first 2 months of the year Jan-Feb, exceeding market expectations of +20.0%. Yet, the country's retail sales and industrial production growth were also below expectations.
Much of today's focus is on the FOMC meeting. Speculations of QE3 have reduced markedly after the Chairman's testimony weeks ago. It's widely expected that not much change would be see in the rate guidance and the policy statement. Yet, Bernanke remained concerned about the employment condition in the US. Given the fact that the unemployment rate stayed above 8% in February, further easing is still possible later this year. The BOJ will also hold announce on its interest rate and asset purchase decisions after the 2-day meeting. The market is awaiting further stimulus from the central bank to boost the economy.