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Mixed reaction to overnight news as traders prep for nonfarm payrolls and more

Mixed reaction to overnight news as traders prep for nonfarm payrolls and more

European indices ate trading lower as well this morning with the FTSE down about 1.2% and the Dax down about 1.6%. Manufacturing PMI reports from across the continent have been running pretty much as expected with Sweden, Poland and Greece showing improvement while Norway and Russia showing weakness. Interestingly two oil sensitive countries underperformed in Europe, which raises questions about how Canada may perform later this morning. We’ll also see if the rebounding loonie has had an impact on manufacturing or if it remains low enough to stimulate exports.

US indices haven’t been caught up in the overseas turmoil as much with Dow and S&P futures trading down only about 0.3%. Traders on this side of the Atlantic appear to be reluctant to commit to a direction before today’s big nonfarm payrolls and manufacturing PMI reports.

Crude oil is trading lower this morning as its trading correction continues with no major news overnight. Currency action has been mixed with EUR, JPY, SEK and CHF up against USD while GBP, CAD, NOK and especially RUB are lower today. This leaves USD and gold essentially sitting flat in the middle although that could change significantly through the morning.  

Over the course of this week, FOMC members including Chair Yellen, and noted doves Chicago Fed President Evans and last night NY Fed President Dudley have been talking positively about the US economy while coalescing around a forecast of two interest rate hikes this year and gradual normalization going forward.

Because of this, it would likely take a huge surprise in nonfarm payrolls to change interest rate speculation away from the current party line of 2 rate hikes this year with the next one most likely in June. It would likely take growth above 300K to set a more hawkish tone and a negative reading to make the tone any more dovish than it already is.

The street is expecting a 205K increase in payrolls down from 242K last month. ADP payrolls were 200K even beating the street by 5K, but jobless claims have been rising over the last month although still well below 300K. Based on all of this, I think we’ll see a 10K downward revision to last month and 220K payroll growth.  This would keep the US in the Goldilocks groove of job growth strong enough to maintain confidence in the US economy and keep recession talk at bay but not too strong which would put pressure on the Fed to raise interest rates sooner.

Big announcements and potential market moving news continues through the morning. ISM Manufacturing PMI is expected to bounce back above 50 while construction spending is expected to retrench after a big month last time. Cleveland Fed Mester speaks later in the day giving a chance to see what the hawkish faction at the Fed is thinking. Any of these developments could spark intraday trading swings but, as with payrolls, it would likely take a huge surprise to change current Fed expectations.

In stocks today, the hotel sector could be active again with Ambang surprisingly and suddenly dropping out of the race to purchase Starwood, leaving Marriott as the top suitor standing. Blackberry may also be active today following its quarterly report where earnings were not as bad as feared but sales were not as strong as hoped.   


Corporate News

Starwood Hotels    Ambang has dropped out of the takeover battle, leaving Marriott as the top remaining suitor.  

Blackberry     ($0.05) vs street ($0.10), sales $487M below street $566M guides software and service revenue growth of 30% for next year plus positive free cash flow.  

Economic News

Significant announcements released overnight include:

Japan Tankan Large Mfg Index    6 vs street 8 and previous 12
Japan Tankan Large Mfg outlk    3 vs street 7
Japan Tankan Lrg Non-Mfg otlk    17 vs street 20

Australia commodity index    (15.4%) vs previous (21.6%)

UK Nationwide house prices    5.7% vs street 5.1%
Italy unemployment rate        11.7% vs street 11.5%

Manufacturing PMI reports:

China official            50.2 vs street 49.4 and previous 49.0
China non-manufacturing    53.8 vs previous 52.7
China Caixin            49.7 vs street 48 3 and previous 48.0

Australia            58.1 vs previous 53.5
Japan Nikkei            49.1 unchanged

UK                51.0 vs street 51.2
Germany            50.7 vs street 50.4
France                49.6 as expected
Spain                53.4 vs street 54.0
Italy                53.5 vs street 52.5
Sweden            53.3 vs street 52.8
Norway                46.8 vs street 48.0
Poland                53.8 vs street 52.6
Greece                49.0 vs previous 48.4
Russia                48.3 vs street 49.5

Upcoming significant announcements include:

8:30 am EDT        US Mar nonfarm payrolls    street 206K
8:30 am EDT        US Feb nonfarm payrolls    revised from 242K
8:30 am EDT        US payrolls net 2M revision    previous 30K
8:30 am EDT        US private payrolls         street 190K vs previous 230K
8:30 am EDT        US unemployment rate         street 4.9%
8:30 am EDT        US average hourly earnings    street 2.2%
8:30 am EDT        US participation rate        previous 62.9%

10:00 am EDT        US construction spending    street 0.1% vs previous 1.5%
10:00 am EDT        US consumer sentiment        street 90.5

12:00 pm EDT        FOMC Mester speaking
1:00 pm EDT        US Baker Hughes drill rig count    previous 464

Manufacturing PMI reports:

9:30 am EDT        Canada                previous 49.4
9:45 am EDT        US Markit            street 51.5
10:00 am EDT        US ISM                street 50.8 vs previous 49.5
10:00 am EDT         US ISM new orders        previous 51.5


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