It’s been a mixed day for trading in stocks. Indices continue to struggle making headway despite another round of generally positive earnings. The FTSE got a boost from better than expected UK manufacturing PMI. In the US, Ford fell 4.3% as automakers reported disappointing April sales. On the other hand, Coach rallied 11.2% and Cummins rallied 6.4% on the back of stronger than expected earnings.
After the close Apple reported earnings that beat expectations and raised its dividend by 10.5%, but NASDAQ futures have been falling in aftermarket trading indicating that traders appear to be focusing more on sales results and sales guidance that fell short of expectations.
The Dow and S&P continue to pause just short of their March 1st highs while the NASDAQ appears to be levelling off having achieved a new high recently. Traders don't appear to be interested in moving aggressively in either direction ahead of tomorrow’s ADP payrolls and FOMC meeting. Last month, ADP came in strong while nonfarm payrolls were very weak coming in below 100K. This month we could see either a soft ADP figure or a big downward revision to last month. The street is thinking payrolls could fall to 175K from 263K. Between a run of poor hard data like recent GDP, consumer spending and now auto sales reports, the Trump honeymoon effect fading and plus jobless claims starting to rise, I’m thinking we could see a reading of 150K and possibly even lower.
More evidence of a slowing US economy could put the Fed into a spot. Employment is a lagging indicator and should it continue to crack, it could mean that the US economy may have passed its peak for this cycle. Meanwhile, inflation continues to rise even though the Trump tax and spending plans are nowhere near approval or implementation.
At this point, it’s up in the air as to whether the Fed will see the need to raise interest rates again in June. Adding to the volatile mix, however, is comments from President Trump, who, having lost this round of budget negotiations, appears to be setting the stage for a big showdown and favouring a government shutdown in September. This pretty much rules out a September rate hike, so if the Fed doesn't raise in June, they may not get another chance until December. Because of this, Wednesday’s statement could have a significant impact on market sentiment, particularly if the central bank makes any hints about whether it is still on track for a June rate increase or not.
Crude oil plunged for a second straight day with traders still reacting to previously shut-in Libya production coming back on line (even though this should not be a surprise and could go back off line again just as quickly). Late in the day, crude oil started to claw back some of these losses after a big drawdown in US API inventories indicated an improving supply/demand situation in the US. Oil may remain active through tomorrow’s DOE inventory reports.
Apple earnings may have an influence on trading in the technology sector along with results from Facebook tomorrow. Also today Australia’s service PMI report could attract attention, particularly if it confirms the strong manufacturing PMI report which boosted AUD earlier this week. Germany employment figures in the morning could impact trading in Germany 30 and the Euro.
Corporate News
Apple $2.10 vs street $2.02, sales $42.9B vs street $53.0B; guides next Q sales to $43.5-$45.5B below street $45.6B, 10.5% dividend increase
Economic News
Significant announcements released overnight include:
US API crude oil inventories (4.2 mmbbls)
US API gasoline inventories (1.9 mmbbls)
UK manufacturing PMI 57.3 vs street 54.0
Germany manufacturing PMI 58.2 as expected
France manufacturing PMI 55.1 as expected
Italy manufacturing PMI 56.2 vs street 56.0
Italy unemployment rate 11.7% vs street 11.5%
Upcoming significant economic announcements include:
(Note: 11:30 am in Sydney/Melbourne is currently 1:30 pm in Auckland, 4:30 pm in Vancouver, 7:30 pm in Toronto/Montréal, 12:30 am in London and 8:30 am in Singapore)
9:30 am AEDT Australia service PMI previous 51.7
8:55 am BST Germany unemployment chnge street (11K) vs previous (30K)
8:55 am BST Germany unemployment rate street 5.8%
9:30 am BST UK construction PMI street 52.0
10:00 am BST Eurozone GDP street 0.5%
10:00 am BST Eurozone producer prices street 4.2%
8:15 am EDT US ADP payrolls street 175K vs previous 263K
9:45 am EDT US Markit Service PMI street 52.5
10:00 am EDT US ISM non-manufact PMI street 55.8
10:30 am EDT US DOE crude oil inventories street (3.2 mmbbls)
2:00 pm EDT US FOMC interest rate 1.00% no change expected
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