Futures Up Despite Trade War Fears
If 2018 has thus far been the year of the stock market roller coaster, then Wednesday was its picture-perfect microcosm: a pre-market fallout of -550 on the Dow — and big drops in the S&P 500 and the Nasdaq, as well — due to articulation on trade tariff tensions between the U.S. and China, only to reverse course and finish in the green by yesterday’s closing bell.
Was a cease fire declared in the brewing trade war with China? Hardly. But market participants were able to collect themselves enough to recognize we’ve not yet seen any tariffs penned in ink, let alone set in stone. So unless and/or until we actually endure the pain of tightening tariffs spiking higher prices on imported goods while also generating major supply gluts on U.S. exports, they remain theoretical to this point.
And though the markets work as a forward economic indicator, Zacks Senior Strategist Kevin Cook astutely points out that the big sell-off yesterday morning had crossed a technical threshold that swung back into buying opportunities. You can read his article here: Critical Market Juncture: Absurdity
A couple economic news items hit the tape ahead of Thursday’s opening bell: new Initial Jobless Claims from last week and the February read on the domestic trade balance. Jobless claims increased 24K to 242K from an upwardly revised 218K the previous week. This is a pretty big jump week-over-week, but consider that the previous two weeks’ reads broke low levels not seen since the years of “prog rock” (ask your hip uncle).
A headline of 242K is also within our long-term range of 225-250K consistent with an historically robust labor market. Continuing claims sank further, to a smidge under 1.81 million; this read has not reached 2 million claims since the hurricane-riddled environment of late last summer.
Jobless claims also come sandwiched this week been private-sector payrolls from ADP ADP yesterday and the Bureau of Labor Statistics (BLS) non-farm payroll report tomorrow, before the opening bell. Analysts are looking for roughly 180K new jobs from March, though recent months’ projections have been notably low compared to the actuals. ADP’s report from Wednesday saw 245K new jobs last month just in the private sector alone.
And the Trade Balance (deficit) from February is now the deepest hole we’ve been in since the middle of the crisis of the Great Recession: -$57.6 billion. We’ve not yet bottomed out from the lowest levels of economic collapse a decade ago, but considering the last time our jobs market was a strong as it is today we were running trade balances at or near absolute zero — and had always been there from the beginnings of this survey in 1950 — we can safely consider this a big number.
Keep in mind this read is from February, meaning this was before threats of a trade war with China were anything more than an overlooked campaign promise from the Trump campaign. It will be interesting to see how this trade deficit is affected by threats of tariffs, etc., and even more if a trade war actually ensues.
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