Stock markets tried to rebound Thursday initially shrugging off some of its late Wednesday weakness as traders got over the shock of the Fed suggesting concern about high stock prices after spending years jamming them higher, and indications that shrinking the Fed’s balance sheet could start later this year rather than 2018 as many had thought previously. Today SF Fed President Williams indicated balance sheet normalization could take up to five years so it will be a long, slow process. In the end the rally was pretty feeble and stocks struggled into the US close.
There was a big dispute in the US Senate today over confirming Supreme Court Candidate Neil Gorsuch. His nomination was blocked in a 44-45 vote. The Republicans are planning to introduce a “nuclear option” which will enable them to approve the nomination with only 50 votes rather than 60. The bigger issue, however, is that it shows the parties are still really far apart on everything which could make it difficult to get health care reform, tax reform, infrastructure spending and other measures through Congress.
The rebound in North American stocks was led by the energy sector, where stocks got a boost from a 1.1% gain on WTI crude oil on indications the supply overhang from Iranian oil stored on ships may be gone, and a 1.3% gain in natural gas on a smaller than expected inventory build (the first build of the season, confirming that winter heating season is over). Chatter over possible US military action in Syria over the use of chemical weapons could spark action in crude oil prices along with defensive havens like gold if anything comes of it.
Focus now turns to the really big events that traders have been waiting for all week.
The long awaited summit between US President Trump and Chinese President Xi begins this evening with a dinner and more meetings planned for Friday. There have been suggestions that this could be a difficult meeting with trade relations, currency manipulation and North Korea all potential flashpoints right at the top of the agenda. Friday morning, German trade data is due which could impact President Trump’s mood related to the trade deficits the US has been running. UK trade numbers are also due which could indicate the impact of Brexit and the lower pound on UK trade.
Friday’s other big impact event is the US nonfarm payrolls report. There has been some question lately with soft data like PMI and consumer confidence surveys for the US running very strong but hard data points like consumer spending, retail sales and industrial production slowing a bit. Payrolls are the top hard data report of the month and could have a big impact on sentiment.
The street is expecting nonfarm payrolls to drop back to 180K from 235K last month. Considering that jobless claims have remained low into April, with a surprisingly strong report today, the employment component of manufacturing PMI remained strong and ADP payrolls beat the street by nearly 80K, I think the street is being overly pessimistic. Even with a US government hiring freeze, I think the US could post job growth of 250K this month as the new administration continues to be well received by US businesses.
There are two other components of the report that could attract attention. Manufacturing payrolls are expected to decline and could attract attention from President Trump with his drive to bring factory jobs home, and could become an issue in his meetings with Chinese President Xi. Also, average hourly earnings could impact trading if there is a big surprise as the potential impact of inflation on monetary policy
remains a key focus point with traders.
Canada employment is also due Friday morning. The street is expecting a 5K net increase in jobs down form 15K last month. Once again I think the street is too pessimistic and I am thinking 20K. More important than the headline figure could be the full-time/part-time split. Last month there was a huge conversion into full-time (up 105K) jobs from part-time jobs (down 90K) a positive sign for the Canadian economy. It will be interesting to see if this continues and becomes a trend or if there is a retrenchment. Later in the morning, the Bank of Canada unveils its new bank note and Ivey PMI is due.
There have been no major announcements after the US close today
Significant announcements released overnight include:
Canada building permits (2.5%) vs previous 5.4%
US jobless claims 234K vs street 250K
US natural gas storage 2 BCF vs street 8 BCF and previous (43 BCF)
Germany factory orders 3.4% vs street 4.0%
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 AEST Australia construction PMI previous 53.1
7:00 am BST Germany industrial production street 0.5%
7:00 am BST Norway industrial production previous 1.3%
7:00 am BST Germany trade balance street €17.7B vs previous €14.8B
9:30 am BST UK trade balance street (£2.2B)
8:30 am BST UK Halifax house prices street 4.0% vs previous 5.1%
9:30 am BST UK industrial production street 3.7% vs previous 2.7%
9:30 am BST UK manufacturing production street 3.9%
9:30 am BST UK construction output street 1.9%
1:00 pm BST UK NIESR GDP estimate street 0.6%
8:30 am EDT US nonfarm payrolls street 180K vs previous 235K
8:30 am EDT US private payrolls street 170K
8:30 am EDT US manufacturing payrolls street 17K vs previous 28K
8:30 am EDT US unemployment rate street 4.7%
8:30 am EDT US average hourly earnings street 2.7% vs previous 2.8%
8:30 am EDT Canada jobs change street 5K vs previous 15K
8:30 am EDT Canada full-time jobs previous 105K
8:30 am EDT Canada part-time jobs previous (90K)
8:30 am EDT Canada unemployment rate street 6.7%
10:00 am EDT Canada Ivey PMI street 56.0
10:00 am EDT Bank of Canada Poloz unveils new bank note
12:15 pm EDT FOMC Dudley speaking