3 numbers to watch: US Trade Balance, Inventories, FOMC Minutes

The most recent FOMC meeting saw a continuation of the so-called Operation Twist programme (to the tune of approx. USD 267 billion), which aims to push down longer-term yields while selling shorter-term paper. Will today's Minutes offer more news on any potential discussions of such matters as Quantitative Easing 3 and the Fed Funds Rate? Also we have reports on the US Trade Balance and Wholesale Inventories, both of which impact Gross Domestic Product.

May US Trade Balance (12:30 GMT) to record a narrowing deficit? As commodity prices, energy prices in particular, have come down in recent months the effect on inflation has been noticeable. That is not the only impact, however, as foreign trade is also affected by changes in energy prices with less imports and potentially more exports (though USD strength has the opposite effect here). Consensus expects the trade deficit to narrow to USD 48.5 billion in May from 50.1bln. a month earlier.

May US Wholesale Inventories (14:00) to increase yet again, but at slower pace: a part of the reason for the current slowdown in the US economy is that too much inventory has built up in the last few quarters (which has aided GDP by 1.8pp in 4Q '11 and 0.1pp in Q1 '12). Hence manufacturers have slowed down production to get rid of the accumulating inventory which acts as a drag on economic activity. While we are not there yet we do expect a (tempered) pick up in economic performance later this year as production is increased. For May, consensus expects Wholesale Inventories to rise 0.3% m/m after 0.6% in April, which would then be tied with March for the weakest monthly growth rate since November.

• Minutes of June 19-20 FOMC meeting (18:00): with the economy slowing down the Federal Reserve's FOMC decided to extent its "QE2½" programme, also known as Operation Twist, to year-end which is expected to result in a further selling and buying of US Treasuries worth some 267 billion. The FOMC did not go beyond this, however, and initiate an outright QE3 programme despite the calls for a new recession growing larger by the day. The fact that the FOMC maintains that the economy will pick up gradually towards year-end likely means that discussions of QE3 have been limited with Chicago Fed President Evans likely still sticking with his QE3 calls. Evans commented not long after the FOMC meeting that he only expected Operation Twist to have modest impact and preferred net new asset purchases.