Morning Trading Notes Jan 31: FOMC, PMI and ADP Payrolls headline a big day for data as stocks rebound and resource currencies rally

January 31, 2018, 6:40 am EDT

US indices have responded favourably to last night’s State of the Union address from President Trump. The President took a more conciliatory approach toward Congress and highlighted many of the successes of the last year including tax reform, employment and stock market gains and increased business investment in the US. The President outlined a potential compromise on immigration and called for a $1.5 Trillion infrastructure program. He also indicated he plans to bring down US drug prices which could impact the health care/biotech sector today.

The street isn’t going to have much time to look back at the speech today however, with the turn of the month bringing a number of major economic reports. Overnight, China reported mixed PMI numbers with non-manufacturing beating the street and manufacturing falling short. Meanwhile in Germany strong employment numbers were offset by weak retail sales, dragging on the Dax.

Commodity trading has been mixed. Oil prices have stabilized but WTI and Brent remain stuck below $65.00 and $70.00 respectively. Natural gas is getting hammered for a 4.3% loss as traders take profits into month-end and look toward the end of heating season. Wheat is giving back some of its recent gains while copper has a 1% bounce underway.

Despite mixed signals in commodity prices, resource currencies are in rally mode today, led by the Canadian Dollar and New Zealand Dollar. Gold and the South African Rand also have been climbing. Australian stocks rallied overnight which bodes well for other resource heavy markets like the S&P/TSX which is going to try to stop two days of big losses.

Today’s main event in economic news is the Fed decision and statement. Its Janet Yellen’s last meeting as FOMC chair so the central bank is widely expected to remain on hold this time out, leaving the way clear for incoming Chair Powell to put his stamp on direction at the next meeting in March. On the interim, traders may look to the statement for hints of which way the new leadership is thinking, but may not get much.

Earlier today, ADP payrolls are due at 8:15 am EST, a leading indicator of what we could see in Fridays’ nonfarm payrolls report. The street is expecting a decline to 185K from 250K last month. At 9:45 am, Chicago PMI, a leading indicator of tomorrow’s national report, is due with a decline to 64.1 from 67.8 last month expected. US weekly DOE energy inventories are due at 10:30 am EST with the street expecting a 0.1 mmbbl increase, ending several weeks of big drawdowns. Last night API reported an increase for the second week in a row, this time 3.2 mmbbls.  Other economic reports due this morning include Canadian producer prices and US pending home sales.

It’s another big day for earnings (particularly technology) as well with results in the US due from Facebook, Microsoft, Boeing, Eli Lilly, AT&T, eBay, Citrix, Symantec, Xerox and US Steel. In Canada results are due from Open Text, CGI Group and Methanex.

 

This article is intended as general market commentary, based on sources considered to be reliable but could contain unintended errors. Commentary, estimates and charts are provided for information, education and entertainment purposes. They are not intended as and should not be construed in any way as investment advice. The authors assume neither liability nor credit for returns from readers’ trading or investment activity. We do not accept any remuneration from companies mentioned in this report. The authors or related parties may enter or exit short term trading positions in markets mentioned in this report at any time without notice. Some of the charts used in this commentary are based on Forex and Contracts for Difference (CFD) markets; leveraged products which carry a higher degree of risk and may not be suitable for all investors. CFD trading is not available in the United States of America. Copyright 2018 The Fundamental Technician, all rights reserved.

 

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