A ton of economic news to kick off markets has markets moving in different directions overnight. The quarterly BoJ Tankan survey in Japan indicated business sentiment running well below expectations sending Asia Pacific stock markets sharply lower with the Nikkei falling 3.5%. On the other hand, manufacturing PMI for China climbing back above 50 into expansion territory cushioned the blot for the Hang Seng which fell only 1.5% and sent copper higher.
European indices ate trading lower as well this morning with the FTSE down about 1.2% and the Dax down about 1.6%. Manufacturing PMI reports from across the continent have been running pretty much as expected with Sweden, Poland and Greece showing improvement while Norway and Russia showing weakness. Interestingly two oil sensitive countries underperformed in Europe, which raises questions about how Canada may perform later this morning. We’ll also see if the rebounding loonie has had an impact on manufacturing or if it remains low enough to stimulate exports.
US indices haven’t been caught up in the overseas turmoil as much with Dow and S&P futures trading down only about 0.3%. Traders on this side of the Atlantic appear to be reluctant to commit to a direction before today’s big nonfarm payrolls and manufacturing PMI reports.
Crude oil is trading lower this morning as its trading correction continues with no major news overnight. Currency action has been mixed with EUR, JPY, SEK and CHF up against USD while GBP, CAD, NOK and especially RUB are lower today. This leaves USD and gold essentially sitting flat in the middle although that could change significantly through the morning.
Over the course of this week, FOMC members including Chair Yellen, and noted doves Chicago Fed President Evans and last night NY Fed President Dudley have been talking positively about the US economy while coalescing around a forecast of two interest rate hikes this year and gradual normalization going forward.
Because of this, it would likely take a huge surprise in nonfarm payrolls to change interest rate speculation away from the current party line of 2 rate hikes this year with the next one most likely in June. It would likely take growth above 300K to set a more hawkish tone and a negative reading to make the tone any more dovish than it already is.
The street is expecting a 205K increase in payrolls down from 242K last month. ADP payrolls were 200K even beating the street by 5K, but jobless claims have been rising over the last month although still well below 300K. Based on all of this, I think we’ll see a 10K downward revision to last month and 220K payroll growth. This would keep the US in the Goldilocks groove of job growth strong enough to maintain confidence in the US economy and keep recession talk at bay but not too strong which would put pressure on the Fed to raise interest rates sooner.
Big announcements and potential market moving news continues through the morning. ISM Manufacturing PMI is expected to bounce back above 50 while construction spending is expected to retrench after a big month last time. Cleveland Fed Mester speaks later in the day giving a chance to see what the hawkish faction at the Fed is thinking. Any of these developments could spark intraday trading swings but, as with payrolls, it would likely take a huge surprise to change current Fed expectations.
In stocks today, the hotel sector could be active again with Ambang surprisingly and suddenly dropping out of the race to purchase Starwood (NYSE:HOT), leaving Marriot (NASDAQ:MAR) as the top suitor standing. Blackberry (TO:BB) may also be active today following its quarterly report where earnings were not as bad as feared but sales were not as strong as hoped.