Even when things seem to get back on track, you have to expect a Trump play. A Trump trade. Call it what you want. Trump likes to move the market and like we noted this past Sunday, “There are plenty of opportunities to react to the news, but nothing’s created true emotions in this market. In live trading you always have to be on your toes, but when it comes to Trump, you have to be more ready than ever!” Trump only has to utter or type the word “trade” in his Twitter account, and you know markets are going to move. Yesterday, it was big time! The market plunged yesterday after Trump slapped on import tariffs on European, Canadian and Mexican aluminum and steel. Yesterday, with exemptions soon to lapse, Trump pulled the trigger, evoking strong responses overseas. The EU deplore tariffs, referring to them as “protectionism, plain and simple.” What, perhaps, evoked the greatest frustration on the part of Europe was that America was long seen as an ally, the European Commission, issuing the following statement: “Today is a bad day for trade. We did everything to avoid this outcome,” adding, “This is not the way we do business, and certainly not between longstanding partners, friends and allies.”
And now, what can we expect?! Nothing other than retaliation, tit-for-tat, “an eye for an eye, a tooth for a tooth.” It is self-evident that when trades suffers by virtue of mounting protection, markets – which are no more than a reflection of expected economic growth – also take a hit. Now with Europe placing everything on its radar everything from U.S. agricultural products, industrial and steel products, Harley-Davidsons, whiskey and jeans, the revenues and earnings of many U.S.-based firms are expected to suffer.
Saxo Bank’s chief equity strategist, Peter Garny, isn’t so bearish, though, in the long-run. Contending that the sudden tariffs were a ploy to get his counterparts to the bargaining table, he commented: “The whole trade war, in the end, won’t be what triggers the next recession. It will probably come from a different source. It is more likely that Asia, emerging markets/China will be the center of the next crisis.”
As for the short-run, we have to always be on the lookout for the next Tweet, White House Press Conference, or even off-the-cuff remark. Todd Market Forecast’s Stephen Todd said it plain and simple: “The bears never seem to run out of ammunition,” expounding, “The market has been dealing with the potential for a trade conflict with China, but today’s announcement concerning tariffs for steel and aluminum targeting Mexico and Canada seemed to take the market by surprise.”
Economic Diary: Today will be a very big day on the Economic Diary. After the reversal of fortunes yesterday on the market, the market is looking for the Employment Situation report to hit the sweet spot, to not come out too weak which could signal an economic slowdown – or too strong, which would connote the prospect of inflation, bringing discussions of 3 or 4 rate hikes this year back on the front burner. The Employment Situation report will be coming out at 8:30, with the PMI Manufacturing Index scheduled for 9:45. The ISM Manufacturing Index will be released at 10:00, with Construction Spending numbers coming out at the very same hour. Then, with crude seeing such active movement of late, keep your eyes set on the Baker-Hughes Rig Count at 13:00.
As for projection, economists have the Bureau of Labor Statistics’ employment report featuring 190 thousand new hires, and the unemployment report staying in place at 3.9%. Economists see hourly earnings rising 0.2% over the month prior. There is a lot of variability in terms of the projections of individual economists (the figure above relates to average projections). For example, Goldman economists predict a reading of 205 thousand, noting rebounding business surveys and better weather as indicators of renewed strength. Over at J.P. Morgan, Daniel Silver is anticipating a reading of 250,000. Whatever the number is today, know that it will move the market, so be ready!
This report, though, would not be complete without noting the meteoric rise yesterday in the stock of General Motors (GM), which took off, through the roof after the SoftBank Vision fund announced that it was investing $2.25 billion in GM’s driverless-car unit, GM Cruise Holdings. The 19.6% stake in unit values it at $11.5 billion, much higher than the price at which Wall Street analysts had valued it. With GM planning a 2019 rollout of a fleet of synchronized all-electric autonomous vehicles, this could be just the beginning for the stock! One analyst upgraded the stock based on the announcement alone – and Barron’s noted that even with GM up 11.45% yesterday, the stock still trades under 7x projected 2018 earnings of $6.37 a share. Where GM could fund its own investments in its automated unit, this now gives it strong capital funding at its back, freeing up more funds for GMs traditional vehicle units. And lastly, with more large funds and tech companies trying to get a foothold in car companies, we could see GM’s stock continue to rise. Just remember Warren Buffett’s rebuffed attempt to invest $3 billion earlier this year in Uber. With GM being one of the top players in the automated vehicle sector, leveraging its experience and now with SoftBank also at the helm, GM may find even greener pastures.
Market Summary: All of the major markets fell. The blue-chip Dow was down 1.02%, the S&P 500 falling 0.69% and the NASDAQ shedding 0.27%.
Hot Stocks: ANF, GME, DLTR, DG, MU, GM
Have a great trading day!