Stock markets are steady again this morning with traders looking for the next catalyst to make a move. Although stocks look tired and some profit-taking may be starting, so far declines have been offset by capital still coming in from the sidelines. Don't forget that tax deadlines for retirement contributions is around now or has just passed in several countries and that money may be getting put to work chasing this rally.
Indices around the world remain mixed. The Nikkei fell 0.4% while the Hang Seng rose 0.4%. US index futures are down 0.2%, the FTSE is flat and the Dax is up 0.2%.
WTI crude oil is down 0.7% following a huge 11.2 mbbl increase in API inventories which indicates the big build isn't over yet. CAD is trading lower in sympathy and this could also impact energy stocks. DOE reports are due mid-morning which could also have an impact on energy trading. China’s trade report was mixed with a surprise deficit driven by a big surge in imports. AUD and NZD have been impacted negatively by this news.
Sterling has been sliding ahead of today’s UK budget and reeling from yesterday’s passage in the House of Lords of a second amendment giving Parliament more say over a final Brexit deal by enabling lawmakers the ability to send the government back to negotiate further not just take it or leave it. Based on their reaction, traders seem to think that this could muddy the process or weaken the government’s hand in negotiations.
The UK budget speech is underway. Chancellor Hammond has been talking up the positive impact of Brexit on the UK so far, as the government raises its 2017 GDP growth forecast to 2.0% from 1.4%, above the OECD’s recent 1.7% forecast. Inflation is expected to run 2.4% this year. The government has cut its borrowing projection for this year to £51B from £62B. The FTSE has been holding steady since the speech started, GBP has been climbing, indicating the street sees the speech so far as neutral to slightly positive.
Wednesday also brings the first US payroll reports. Following comments from Fed Chair Yellen that the Fed plans to review employment and inflation trends in the US with the potential for a rate increase at next week’s meeting, this week’s ADP and nonfarm payroll reports for February in the US could attract a lot of attention.
Last month’s January reports revealed a surge in hiring to start the new year with ADP private sector payrolls increasing 246K and nonfarm payrolls increasing 227K way above street estimates of 168K and 180K respectively.
The street is currently expecting to see a retrenchment in hiring as shown by the consensus estimates for ADP payrolls of 189K and nonfarm payrolls of 190K. I think that the street is being overly pessimistic. US jobless claims have remained low, economic data has remained positive and the oil price has held above $50 helping one of the more depressed parts of the US economy to recover.
Based in this, I am thinking about 210K for both. I think that it would take a report below 150K for traders to rethink expectations for a US interest rate increase this month. Also note that average hourly earnings are expected to grow 2.8% over year up from 2.4% last month. Rising wage pressures may also increase pressure on the Fed to raise interest rates sooner rather than later.
There have been no major corporate announcements so far this morning.
China trade balance ($9.1B) vs street $27.0B
China exports (1.3%) vs street 14.0%
China imports 38.1% vs street 20.0%
Japan GDP 1.2% vs street 1.5% vs previous 1.0%
Germany industrial production 0.0% vs street (0.6%)
Upcoming significant economic announcements include:
8:15 am EST US ADP payrolls street 189K vs previous 246K
8:15 am EST Canada housing starts street 200K
10:30 am EST US DOE crude oil inventories street 1.3 mmbbls
10:30 am EST US DOE gasoline inventories street (2.0 mmbbls)
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