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Jobless Claims to Set Course for Markets

The first weekly jobless claims data since the release of June’s disappointing employment report could help set the course for markets Thursday.

The big news Thursday, however, will come late at night New York time when China releases GDP, industrial production and retail sales, during its Friday morning hours. These reports follow trade data that earlier this week raised concerns about the strength of China’s domestic demand, at a time when analysts have been hoping to see signs that the Chinese economy is bottoming. Second quarter GDP was expected at 7.7 percent but there has been speculation it could be lower, especially since China cut interest rates for a second time last week.

In the U.S., jobless claims are expected to come in at 370,000, down slightly from last week’s 374,000. Last week saw the biggest decline in claims since April.

“If I had to guess, it would be to come off another week,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi. “It’s a very important number but it is the most difficult to forecast. We usually use this number to give us a sense of what’s going on with the other numbers. It went up earlier, and it came down pretty good last week. We might get a little more follow through.”

Weeks of elevated unemployment claims data preceded Friday’s report that just 80,000 nonfarm payrolls were created in June. That was short of estimates of 100,000 jobs for June, and sparked immediate speculation the Fed would move to do another round of quantitative easing . But the release Wednesday of the minutes of the Fed’s last meeting did not show a Fed anxious to move on QE, yet.

Instead, it showed a divided Fed with just two members favoring quantitative easing, which is the purchase of Treasurys or other securities. QE is unlike the Operation Twist program, which the Fed did extend in June. Twist does not expand the Fed balance sheet since the Fed buys longer dated Treasurys and sells the same amount of shorter dated securities.

“Realistically because they announced they were going to extend Twist for six more months, why should we really be looking for additional QE,” said Rupkey. “…We’re all kind of being railroaded into the idea of it. Are they going to step it up a notch when the reality is they just did something?”

Stocks sold off after the Fed minutes disappointed traders, and the dollar moved higher, touching a two-year high against the euro. The Dow was off 48 to 12,604, and the S&P 500 was down less than a point at 1341.

Besides claims, import prices are also reported at 8:30 a.m. ET, and the federal budget is reported at 2 p.m. There is a $13 billion 30-year auction at 1 p.m.

Traders were also watching the Bank of Japan meeting, scheduled for Thursday morning.

Boris Schlossberg, managing director at BK Asset Management, said he expected Japan to take some action, perhaps quantitative easing. The euro finished the day at 1.2239, and dollar/yen broke below the key 80 level, finishing the session at 79.7629.

“The next run through 80 could be the next break out move,” he said. “Dollar yen could finally form a meaningful rally.”

Schlossberg said the market is positioning against the euro, and the beneficiaries have been the dollar but also the commodities currencies, which were higher against the greenback. “The commodity currencies are holding their own now. They are now being seen as a triple, safe harbor with a yield attached, the best of all worlds,” he said. The commodities currencies are the Australian, New Zealand and Canadian dollars.

Grains Gone Wild

It was a crazy day in the grain pits Wednesday, with corn making a $0.60 move, first swinging sharply higher then lower before ending the day at $7.04 per bushel. Corn and other grains initially rose after the USDA crop report showed a significant drop in projected crop yields due to drought in the key growing areas. Corn was the most affected, and the forecasted yield was cut by 12 percent.

Corn hit a high of $7.46 in hectic trading, but was still well below its 2011 all-time high of $7.9975.

“I think that we’ve seen the interim top today,” said Dennis Gartman of the Gartman Letter. “That doesn’t mean we’ve seen the top. I bet we’ll go higher later. Where can we go? If the crop is as small as I think it might get, it can get all the way down to 12.8. History teaches us we could get $8.50 corn.”

The USDA is now forecasting a crop of 12.9 billion bushels, from a former estimates of a record 14.8 billion bushels fort 2012.

Follow Patti Domm on Twitter: @pattidommQuestions? Comments? Email us at marketinsider@cnbc.com

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  • Patti Domm

    Patti Domm is CNBC Executive Editor, News, responsible for news coverage of the markets and economy.

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