Stock markets around the world have come under pressure overnight and into this morning. Australia's S&P/ASX fell by 1.0% while in Europe, the Dax, CAC and FTSE are all down about 0.3%.

In the US, Dow and S&P futures are down by 0.1% while NASDAQ futures are down 0.3%. The NASDAQ has outperformed lately and may be finally giving up the rally. The trigger for the downturn may be a negative reaction to Apple's earnings report which saw earnings beat the street but iPhone shipments and sales guidance come in below expectations. Facebook and Tesla Motors report today which may show how much interest remains for vrowth plays or if sentiment is turning cautious.

Crude oil has been trading higher overnight with Brent Crude holding $50.00. Traders have taken a cautiously optimistic approach to a bigger than expected decline in US API oil inventories while looking to today's DOE reports for confirmation.

In currency action, the US Dollar is up against pretty much everything ahead of today's ADP payrolls and FOMC decision. 


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. 

The Dollar gains suggest that traders expect the Fed to stay on course for a June rate hike. Traders should note though that recent strength in technology stocks and employment is often a sign we are near the end of a cycle so if these give way it could be a sign of trouble ahead.

Corporate News

Apple    $2.10 vs street $2.02, iPhone shipments 50.7M below street 52.2M; guides next Q sales to $43.5-$45.5B below street $45.6B, 10.5% dividend increase

 

Economic News

Significant announcements released overnight include:

Australia service PMI        previous 51.7

Germany unemployment chnge    street (11K) vs previous (30K)
Germany unemployment rate    street 5.8%

UK construction PMI        street 52.0
Eurozone GDP            street 0.5%
Eurozone producer prices    street 4.2%


Upcoming significant economic announcements include:

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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