Speculation that China may have to tighten its economic policy is pulling investor sentiment lower this morning. Amid positive data on industrial production and retail sales, Chinese CPI climbed 2.7% in February, indicating that the central bank may have to take a more serious approach to slow down spending.

“China is aiming for 3% inflation for all of 2010,” said Benjamin Reitzes from BMO. “Continued acceleration would make that target tough to hit and markets are concerned that this latest jump in inflation could cause Chinese officials to tighten policy further.”

Reitzes called the CPI figure “somewhat troubling,” adding that it’s too early to a definitive statement that prices are about to take off.

“However, with the economic numbers showing nothing but strength, and lending remaining solid, some monetary policy tightening should be expected throughout the year,” he added. “Look for further reserve requirement hikes in the near term, and interest rate hikes and potential yuan appreciation likely starting by mid-year.”

75 minutes before the opening bell, markets are heading for a lower open. Dow futures are down 15 points higher to 10,555 and futures on the S&P 500 are off 3.25 points to 1,142.50. 

Meantime, the dollar is slightly weaker, WTI crude oil is up 6 cents to $82.15 per barrel, and Spot Gold is trading $2.82 lower at $1,105.60.

Key Events Today:

8:30 ― Economists expect the Trade Balance to widen modestly in January. The consensus call is for a $41 billion deficit, compared with $40.2 billion a month before but well up from the $36.4 billion gap in November. 

Economists from IHS Global Insight said higher oil prices have pushed up the bill for imports recently. 

“Export and import volumes both surged in December and we may see a pause in trade growth in January,” they added. “In particular, exports and imports of aircraft will probably fall after sharp increases last month. But the underlying recovery in global trade will continue.”

Analysts from Nomura note that foreign demand for US products, especially from China, remains strong. 

“However, stronger domestic growth is likely to lead to a pickup in imports as well,” they said. “We expect import volumes to increase by a greater amount than export volumes. The major ports have recorded increases in both inbound and outbound container traffic during the month.”

8:30 ― In the final months of 2009 Initial Jobless Claims were falling on a monthly basis but for the past two months the trend has reversed. Claims averaged 471k in February compared to 462k claims in January and 460k in December. For the first week of March economists expect to see claims fall 15k to 454k. But even if accurate it’s nothing to cheer about ― to indicate growth the weekly trend has to be around 400k or lower on a sustained basis.

“This indicator has been exhibiting an upward trend since mid January, illustrative of the ongoing weakness in the labor market,” said economists from BBVA. “Nevertheless, initial claims have come down significantly from their peak of 658K in March 2009. They are expected to drop further, but at a pace consistent with the slow recovery of the labor market.”

Treasury Auctions:

  • 1:00 ― 30-Year Bonds

At 2pm the House Financial Services Committee will hold a hearing on "The FHA Reform Act of 2010". Panelists include: David Stevens (Assistant HUD Secretary),  John Courson ( MBA President),  and Charles McMillan (NAR President). PLUS OTHERS