Yesterday's big bearish reversals and late day selloff carried through overnight trading but appears to be tapering off this morning. ‎The Nikkei fell 1.4%, the FTSE and Hang Seng fell 0.5%, while the Dax is down 0.4%. US index futures are flat licking their wounds at a lower level.

A day that started with tremendous optimism turned into a crushing defeat for market bulls. Stocks initially soared Wednesday on better than expected ADP payrolls. Traders took slightly‎ soft non-manufacturing PMI in stride, but Fed minutes were too much to handle.

Even with the Fed on course to raise interest rates 3-4 times this year, the Fed minutes came in as surprisingly hawkish for two reasons. 

First, FOMC members expressed concern about high stock prices and indicates a big tumble could impact their forecast for the year. Considering that the Fed has been a big backer of the big bull market this decade through its ultra-low interest rate and QE asset purchase policies. 

Second, Fed members indicated interest in starting to shrink the central bank's big balance sheet ‎later this year. To this point the street has been thinking the Fed would raise rates this year then pause and work on the balance sheet next year. Indications they could do both at once was seen as a hawkish surprise.

These two items spooked traders and sent the fast money running for the exits. Much of the monetary stimulus of recent years has followed the path of least resistance into the stock market, inflating prices. Indications that the liquidity party may be ending and the prospect of rocket fuel being taken away could start to drag on indices going forward. 

The hawkish Fed news also boosted the USD late Wednesday and into today the greenback is consolidating its gains for the most part. Oil is bouncing back a bit on reports that Iran has sold the last of the inventory it had stored at sea and is struggling to grow production. This supports rumblings through the week that the slack in the oil market may be shrinking. This prospect has helped CAD to stabilize today as well.

It's a light day for economic news so we may see traders continue to react to the Fed minutes and prepare for upcoming developments. ECB minutes have come and gone with no surprises. President Draghi indicated plans to stay the course for now, likely through the end of the year to get past the big elections coming up in France, Germany and maybe Italy. 

Tomorrow brings US nonfarm payrolls and Canada jobs which may settle whether economic or monetary factors are the bigger driver of trading these days. The US Trump - China Xi summit is coming up keeping trade and geopolitics in focus. On the US domestic front the wheels continue to turn on health care reform, tax reform and infrastructure spending.


Corporate News

There have been no major corporate announcements this morning. 


Economic News

Significant announcements released overnight include:

Germany factory orders            3.4% vs street 4.0%

China Caixin service PMI        52.2 vs previous 52.6

 

Upcoming significant economic announcements include:

8:30 am EDT        Canada building permits            previous 5.4%

8:30 am EDT        US jobless claims            street 250K

10:30 am EDT        US natural gas storage            previous (43 BCF)


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