U.S. equity futures have moved slightly higher for Thursday after some positive economic news was released out of China suggesting that the world’s second largest economy may be showing signs of rebounding.
New trade data from Beijing’s Customs Administration revealed that Chinese exports rose 5.1 percent in July from the same period last year after a decline of -3.1 percent in June.
Chinese imports in July rose 10.9 percent from the same period last year following a decline of -0.7 percent in June.
U.S. equities have been under pressure this week with the S&P 500 and the Dow having three consecutive days of declines near 1 percent following comments from different Fed regional presidents about the likelihood of the Federal Reserve changing the pace of their quantitative easing asset purchases in September.
On Monday Dallas Fed President Richard Fischer, a non voting Fed member who is known for being more hawkish towards quantitative easing, maintained that the Federal Reserve is moving closer to slowing down their asset purchases after the July employment report showed that the U.S. unemployment rate lowered to 7.4 percent in July from 7.6 percent in June.
Fischer told his Portland audience that longer-term inflationary expectations remain well anchored before weighing in about the prospect of the Federal Reserve reducing their monthly asset purchases of $ 85 billion aimed at stimulating the U.S. economy.
“Having stated this quite clearly, and with the unemployment rate having come down to 7.4 percent, I would say that the Committee is now closer to execution mode, pondering the right time to begin reducing its purchases, assuming there is no intervening reversal in economic momentum in coming months” Fischer said.
On Tuesday Charles L. Evans, the president of the Federal Reserve Bank of Chicago and a voting Committee member known for being more dovish or accommodating towards quantitative easing, said he would not rule out the possibility that the Fed could start tapering as early as September.
Also on Tuesday the president of the Federal Reserve Bank of Atlanta, Dennis P. Lockhart, admitted that the Fed Reserve could begin scaling back the asset purchase program in September.
On Wednesday Cleveland Fed President Sandra Pianalto, a non-voting Fed member, said that if the labor market remains stronger, she would support scaling back the Fed’s asset purchases.
“In light of this progress, and if the labor market remains on the stronger path that it has followed since last fall, then I would be prepared to scale back the monthly pace of asset purchases” Pianalto said.
Following the last Fed meeting in late July, the Fed released a statement that suggests they will continue their asset purchases until the labor market improves in an environment of price stability.
“The Committee will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price stability. The Committee is prepared to increase or reduce the pace of its purchases to maintain appropriate policy accommodation as the outlook for the labor market or inflation changes.”
Higher Interest Rates
Amid growing concerns that the Fed may be planning to reduce their asset purchases with quantitative easing, the yield on the 10 yr. Treasury has jumped to 2.60 from 1.63 in early May.
Interest rates on the 30 year fixed mortgage have moved 1 full percentage point higher, a level that will test the resiliency of the U.S. housing market and the U.S. economy.