FC: EUROPEAN CLOSING REPORT: WEDNESDAY – 7TH – MARCH – 2018 March 07, 2018 at 04:30PM


European cash equity markets have turned higher this afternoon while opening losses on Wall Street have been pared somewhat (FTSE +0.2%, DAX +1.1%, CAC +0.4%). A notable turnaround in basic resources stocks has been the main driver behind the recovery in equity space as investors hold out hopes that the proposed US import tariffs will not be as broad as previously expected. US Commerce Secretary Ross pointed out that Mexico and Canada could be exempt if they can work something out, adding that it is not inconceivable that others could be exempt on a similar basis. The US Dollar has also gained ground in currency space, catching up with the Japanese Yen which has been the outperformer among the G10’s. Sterling also saw some upside after an EU official said they expect to have a Brexit deal in October. UK Finance Minister Hammond added that he expects a transition deal to be finalized at the end of March. On the data front, ADP beat at +235K (f/c. +195K), Q4 unit labor costs were revised up to +2.5% (f/c. +2.1%) from +2.0% and the trade deficit widened to a near 10-year low of -$56.6 Bln (f/c. -$55.1 Bln) – in response, the Atlanta Fed GDPNow estimate for Q1 was cut to +2.8% from +3.5%. Elsewhere, oil prices rebounded off the lows after the DoE reported a smaller than expected build in weekly crude inventories while gold of off by around 0.5%. Still to come today, the Fed’s Beige Book at 19:00 GMT and US consumer credit at 20:00 GMT.


Key Headlines/Data:

US Corporate News:

  • Ross Stores (-4.7%): Q4 EPS $1.09 versus $0.93 expected | Q4 Revenue $4.1 Bln versus $4.0 Bln expected | Sees FY18 EPS $3.86-4.03 versus $3.93 expected
  • AutoDesk (+12.6%): Q4 EPS -$0.09 versus -$0.11 expected | Q4 Revenue $0.55 Bln versus $0.54 Bln expected | Sees FY19 EPS $0.92-1.10 versus $$1.21 expected
  • Dollar Tree (-15.3%): Q4 EPS $1.89 versus $1.90 expected |Q4 Revenue $6.36 Bln versus $6.39 Bln expected
  • Netflix (-1.8%): Stock downgraded at Stifel to hold from buy, citing concerns the company’s stock price has gone up too far.

*  The EU Commission have warned that eleven EU countries are experiencing economic imbalances that should be addressed, noting excessive imbalances in Italy, Cyprus and Croatia.

*  WTO spokesman said China along with 17 other members has sparked a debate over US tariffs. He said many WTO members have expressed both commercial and systemic concerns about US tariffs and said they fear tit-for-tat trade actions

*  EU Council President Tusk said they do not want build a wall between the EU and UK; want to remain friends post-Brexit:

  • It should come as no surprised that the only model for future ties with Britain is a free trade agreement given UK red lines
  • Trade deal will not make trade smoother or more frictionless
  • Will enter talks with an open mind, pick and mix approach is out of the question

US ADP Employment Change (Feb) +235K versus +195K expected, previous +234k revised to 244K

US Commerce Secretary Ross says Trump has indicated flexibility on metal tariffs

US Trade Balance (Jan) -$56.6 Bln versus -$55.1 Bln expected, previous -$53.1 Bln revised to -$53.9 Bln – Widest since November 2008

US Unit Labor Costs/Non-Farm Productivity (Q4 F):

  • Unit Labor Costs +2.5% versus +2.1% expected, previous +2.0%
  • Non-Farm Productivity 0.0% versus -0.1% expected, previous -0.1%

*  Canadian Trade balance (Jan) -C$1.91 Bln versus -C$2.50 Bln expected, previous -C$3.19 Bln revised to -C$3.05 Bln

*  Canadian Labor Productivity Q/Q (Q4) +0.2% versus +0.1% expected, previous -0.6% revised to -0.5%

*  Atlanta Fed President Bostic speaks :

  • Initially expected two rate increases this year but move on three on the basis of fiscal stimulus
  • Possible tariffs could undercut the impact of fiscal stimulus and force the Fed into slower rate increases
  • The considerable stock market increase since the election has not been commensurate with corporate profits and other fundamentals
  • Proposed tariffs will help a couple of targeted sectors but be broadly unhelpful
  • The possibility of tariffs has introduced uncertainty and markers will reflect that
  • Stock market has gone through the roof in the past year

US Treasury Secretary Mnuchin said they will definitely have steel and aluminium tariffs. He added that they will consider carve outs on tariffs

US Commerce Secretary Ross said they are trying a surgical approach to tariffs, adding it is not inconceivable that other countries beside Canada and Mexico could be exempt under certain circumstances.

*  EU Official said they expect to have a Brexit deal in October

*  UK Finance Minister Hammond expects a transition deal to be finalized at the end of March:

  • Says financial services are an area where the UK and EU should collaborate closely; is not a zero sum game
  • Says they can do better than CETA and TTIP on financial services given the starting point
  • Trade deal will only happen if it is fair for both sides
  • Hard to see how a deal without financial services will be fair for Britain

*  Bank of Canada leaves benchmark rate on hold at 1.25% as expected:

  • While the economic outlook is expected to warrant higher interest rates over time, some continued monetary policy accommodation will likely be needed to keep the economy operating close to potential and inflation on target.
  • Governing Council will remain cautious in considering future policy adjustments, guided by incoming data in assessing the economy’s sensitivity to interest rates, the evolution of economic capacity, and the dynamics of both wage growth and inflation.

*  @realDonaldTrump: China has been asked to develop a plan for the year of a One Billion Dollar reduction in their massive Trade Deficit with the United States. Our relationship with China has been a very good one, and we look forward to seeing what ideas they come back with. We must act soon!

*  Atlanta Fed GDPNow (Q1) cut to +2.8% from +3.5%

*  Trump wants to start his trade war tomorrow (Axios):

  • President Trump wants to sign a presidential proclamation tomorrow to set his steel and aluminum tariffs in motion, according to two senior administration officials.

*  DoE Weekly Inventory Report (Mar 2):

  • Crude +2.4 Mln versus +3.0 Mln expected, previous +3.0 Mln
  • Distillate -0.6 Mln versus -1.1 Mln expected, previous -1.0 Mln
  • Gasoline +0.8 Mln versus -1.7 Mln expected, previous +2.5 Mln

*  White House Trade Director Navarro said he is not on the list to replace Cohn. He added that everything about the US economy is bullish.

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