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Beyond the Numbers

Uncertainty About Tariffs, Looming Jobs Report May Lead To Choppy Trading
3/8/2018 9:00 AM

The major U.S. index futures are pointing to a modestly higher opening on Thursday following the mixed performance seen in the previous session.

Despite the upward momentum, traders may be reluctant to make significant moves ahead of the release of the Labor Department’s closely watched monthly jobs report on Friday.

Employment is expected to jump by 200,000 jobs in February, matching the increase seen in January. The unemployment rate is expected to dip to 4.0 percent from 4.1 percent.

Uncertainty about the details of President Donald Trump’s planned tariffs on steel and aluminum imports may also keep some traders on the sidelines.

After initially moving to the downside, stocks fluctuated over the course of the trading session on Wednesday. While the major averages all climbed well off their worst levels of the day, only the Nasdaq managed to close in positive territory.

The major averages subsequently turned in a mixed performance on the day. The Nasdaq rose 24.64 points or 0.3 percent to 7,396.65, but the Dow fell 82.76 points or 0.3 percent to 24,801.36 and the S&P 500 edged down 1.32 points or 0.1 percent to 2,726.80.

The mixed close on Wall Street came after White House Press Secretary Sarah Sanders suggested Mexico and Canada could be exempt from President Donald Trump's planned tariffs on steel and aluminum imports.

"We expect that the President will sign something by the end of the week," Sanders said. "And there are potential carve-outs for Mexico and Canada based on national security and possibly other countries as well based on that process."

She added, "That will be a case by case and country by country basis. It would be determined whether or not there is a national security exemption."

Stocks initially came under pressure in reaction to news of the resignation of White House chief economic advisor Gary Cohn on Tuesday.

The resignation by Cohn, a free trade advocate, reportedly came amid a dispute over Trump's plans to impose tariffs on steel and aluminum imports.

In a statement, Trump said Cohn did a "superb job in driving our agenda, helping to deliver historic tax cuts and reforms and unleashing the American economy once again."

Trump said in a post on Twitter that he would make a decision on a new chief economic advisor "soon," adding, "Many people wanting the job - will choose wisely!"

In U.S. economic news, payroll processor ADP released a report showing private sector employment increased by more than expected in the month of February.

ADP said employment in the private sector jumped by 235,000 jobs in February after surging up by a revised 244,000 jobs in January. Economists had expected an increase of about 195,000 jobs.

A separate report from the Commerce Department showed the trade deficit widened by more than expected in the month of January.

The report said the trade deficit widened to $56.6 billion in January from $53.9 billion in December, reaching its highest level since October of 2008. The deficit had been expected to widen to $55.1 billion.

Later in the day, the Federal Reserve released its Beige Book, which reinforced expectations the central bank will raise interest rates at its monetary policy meeting later this month.

The Beige Book, a compilation of anecdotal evidence on economic conditions in the twelve Fed districts, said economic activity expanded at a modest to moderate pace in January and February.

The Fed noted wage growth picked up to a moderate pace, with employers raising wages and expanding benefit packages in response to tight labor market conditions.

With regard to overall inflation, the Fed said price increases were seen in all twelve districts and most reports noted moderate inflation.

Most of the major sectors ended the day showing only modest moves, although considerable weakness was visible among gold stocks.

Reflecting the weakness in the gold sector, the NYSE Arca Gold Bugs Index slumped by 2.5 percent after jumping by 2 percent in the previous session. The pullback by gold stocks came amid a decrease by the price of the precious metal.

Energy stocks also saw significant weakness, moving lower along with the price of crude oil. While retail stocks also moved to the downside on the day, some strength emerged among biotechnology and real estate stocks.

Commodity, Currency Markets

Crude oil futures are inching up $0.04 to $61.19 a barrel after plunging $1.45 to $61.15 a barrel on Wednesday. Meanwhile, an ounce of gold is trading at $1,326.40, down $1.20 compared to the previous session’s close of $1,327.60. On Wednesday, gold slid $7.60.

On the currency front, the U.S. dollar is trading at 106.13 yen compared to the 106.07 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is valued at $1.2393 compared to yesterday’s $1.2411.

Asia

Asian stocks closed mostly higher on Thursday after the White House indicated that some countries could be exempt from President Donald Trump's planned tariffs on steel and aluminum imports. Better than expected economic data from China and Japan also offered support.

Chinese stocks ended higher after official data showed China's exports grew at a faster than expected pace in February.

The benchmark Shanghai Composite index rose 17.63 points or 0.5 percent to close at 3,289.29, while Hong Kong's Hang Seng Index jumped 457.60 points or 1.5 percent to 30,654.52.

China's exports jumped 44.5 percent year-over-year in February in dollar terms, much faster than the 11.0 percent rise economists had forecast.

Imports climbed 6.3 percent from a year ago, slower than the expected growth of 8.0 percent. The trade surplus totaled $33.74 billion, in contrast to the expected deficit of $5.7 billion.

Japanese stocks rebounded, although markets ended off their day's highs ahead of the ECB and Bank of Japan meetings and Trump's final announcement of tariffs on steel and aluminum imports.

The Nikkei 225 Index ended up 115.35 points or 0.5 percent at 21,368.07 after rising more than 1 percent earlier in the day. The broader Topix index closed 0.4 percent higher at 1,709.95.

Honda Motor and Sony rose about 1 percent on a weaker yen. Steelmaker Japan Steel Works jumped 3.2 percent and Kobe Steel rallied 3 percent as worries about a trade war eased. Nintendo, Tokyo Electron and Eisai soared 4-10 percent.

Japan's GDP grew a seasonally adjusted 0.4 percent sequentially in the fourth quarter of 2017, the Cabinet Office said in Thursday's revision. That exceeded expectations for an increase of 0.2 percent after last month's preliminary reading suggested a gain of 0.1 percent.

Australian shares rose as trade war fears eased and trade surplus figures for January topped forecasts. The benchmark S&P/ASX 200 Index rose 40.90 points or 0.7 percent to finish at 5,942.90, while the broader All Ordinaries Index ended up 41.20 points or 0.7 percent at 6,046.60.

The big four banks rose between 0.4 percent and 1.4 percent after RBA Governor Philip Lowe sounded upbeat about domestic economic growth.

Mining stocks ended mixed, with Rio Tinto rising 0.6 percent and Fortescue Metals Group climbing 2.1 percent, while BHP Billiton dropped 2 percent.

Energy firms also turned in a mixed performance after oil prices fell more than 2 percent overnight on data showing an increase in U.S. crude inventories and output.

On the economic front, Australia posted a merchandise trade surplus of A$1.055 billion in January, the Australian Bureau of Statistics said. That blew away forecasts for a surplus of A$200 million following the upwardly revised A$1.146 billion deficit in December.

Europe

European stocks have turned mixed over the course of the session. While the German DAX Index has fallen by 0.5 percent, the U.K.’s FTSE 100 Index is just above the unchanged line and the French CAC 40 Index is up by 0.4 percent.

Traders also digesting the European Central Bank’s latest monetary policy decision, with the ECB leaving rates unchanged, as widely expected.

The ECB’s accompanying statement removed a phrase indicating a willingness to increase its asset purchase program if necessary.

“The change is arguably the ECB’s first cautious step along a path of gradual policy normalization, which explains the immediate rise in the euro,” said Jennifer McKeown, Chief European Economist at Capital Economics.

She added, “But it won’t have come as a complete surprise given the ECB’s earlier warning that it would ‘revisit’ its forward guidance early this year.”

Akzo Nobel has rallied after the Dutch paints and coatings maker reconfirmed its 2020 guidance despite rising raw material costs and adverse currency effects.

Engie, formerly called GDF Suez, has also jumped in Paris. The natural gas and electricity supplier reported net income for fiscal year 2017 of 1.4 billion euros, compared to a net loss of 0.4 billion euros in the previous year.

Evotec shares have soared after the company entered into exclusive negotiations with Sanofi to accelerate infectious disease research and development through a new open innovation platform.

Meanwhile, insurer Aviva has moved to the downside despite reporting a 2 percent increase in full-year operating profits and enhancing its dividend payment.

French supermarket giant Groupe Casino has also slumped after its full-year net profit fell to 120 million euros from 2.68 billion euros.

Merck KgaA has tumbled after the German chemicals and drugs maker reported a 6.5 percent drop in fourth quarter EBITDA earnings and said it expects a further decline in 2018 earnings on a currency adjusted basis.

U.S. Economic Reports

A day ahead of the release of the more closely watched monthly jobs, the Labor Department released a report showing a bigger than expected rebound in first-time claims for U.S. unemployment benefits in the week ended March 3rd.

The Labor Department said initial jobless claims climbed to 231,000, an increase of 21,000 from the previous week’s unrevised level of 210,000. Economists had expected jobless claims to rise to 220,000.

The bigger than expected increase came after jobless claims fell to their lowest level since December of 1969 in the previous week.

At 11 am ET, the Treasury Department is due to announce the details of next week’s auctions of three-year and ten-year notes and thirty-year bonds.

Stocks In Focus

Shares of Express Scripts (ESRX) are moving sharply higher in pre-market trading after the pharmacy benefit manager agreed to be acquired by Cigna (CI) in a cash and stock transaction valued at approximately $67 billion.

Recreational vehicle maker Thor Industries (THO) is also seeing significant pre-market strength after reporting fiscal second quarter results that beat analyst estimates on both the top and bottom lines.

Shares of Caesars Entertainment (CZR) may also move to the upside after the casino operator reported a fourth quarter profit compared to a year-ago loss.

On the other hand, shares of Zagg (ZAGG) are likely to come under pressure after mobile device accessory maker reported weaker than expected fourth quarter earnings.

Supermarket chain Kroger (KR) may also see early weakness after reporting fourth quarter earnings that matched estimates but providing disappointing guidance.

Shares of Costco (COST) could also move to the downside after the retailer reported fourth quarter adjusted earnings that came in below expectations.
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