Markets Higher as Fears Dim Over a Trade War

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Thursday, March8, 2017, 10:50 AM, EST

  • NASDAQ Composite +0.27% Dow +0.29% S&P 500 +0.22% Russell 2000 -0.32%
  • NASDAQ Advancers: 1043 Decliners: 1032
  • Today’s Volume (100 day avg) -5.9%

Stocks opened higher today although the major indices are off the initial highs. Concerns over a trade war and Cohn’s resignation have diminished. One outcome of the trade war talk has been the outperformance of small and midcap stocks as reflected in the R2K index, which beat the S&P, Dow and Nasdaq five of the past six sessions. That pattern is reversed today. In the meantime eight sectors are higher led by Consumer Staples (+0.6%) and Healthcare (+0.5), while only Financials (-0.3%) and Materials (-0.1%) are seeing red. Crude oil extends yesterday’s decline, Gold is off 0.2%, the dollar slightly higher and the yield on the 10-yr is at 2.855%.

  • Coming off the lowest level since 1969, weekly unemployment claims increased slightly to 231k while continuing claims fell to 1.87 million. The continuing low unemployment claims bode well for tomorrow’s Nonfarm Payroll data, which analyst expect to show about 205k positions created in February. The wage component will get close attention, recall last month an uptick in hourly earnings and related interest rate jitters sent the S&P down 3.5% that day.
  • M&A headlines grabbing headlines mid-week with Express Scripts (ESRX) agreeing to be acquired by Cigna Corp. (CIS) in stock & cash deal valued at nearly $67 billion. Bravo Brio Restaurant Group (BBRG) parent of Bravo, Brio and Bon Vie restaurants agreed to be taken private by Spice Private Equity for $4.05 a share in cash. This is nearly a 17% premium from the previous night’s close. YTD, global M&A has top $1 trillion of announced or proposed deals which is down over 16.5% from this time last year.

Technical Take :

As expected today’s ECB meeting did not bring about any meaningful changes in policy, but as always the committee’s statement and Draghi’s press conference were closely parsed for clues on future direction. Receiving the widest coverage, the ECB’s statement removed the specific pledge to increase asset purchases if necessary. This is likely to be perceived as a minor adjustment given the broad economic expansion that has been underway for some time and the decreasing concerns of deflation. In fact their 2018 growth forecast was revised slightly higher to 2.4% from 2.3%, while keeping unchanged 2019 and 2020 at 1.9% and 1.7%. The current asset purchase plan is expected to end in September but will likely be extended once again given this year’s inflation (CPI) forecast of 1.4% which was unchanged.

After some initial volatility in both directions, the EURUSD is now beginning to trend lower following yesterday’s “spinning top” reversal pattern. Since late January the major currency pair has been range bound between 1.217 support and 1.255 resistance. The near term support line from here is the 50-day sma, now 1.236, however if this gives way then a retest of the lower bound, 1.217 is a possibility. This is a critical support line as it represents the “trigger” of a larger double top reversal pattern. The weakness could have less to do with today’s ECB meeting and more a relief from concerns surrounding US tariffs and a potential trade war. The administration is now willing to make exemptions with trading partners Canada, Mexico, and possibly others, if concessions are given related to NAFTA and national security. As such adjustments in bearish dollar positioning appear to be underway. With correlations increasing during the recent corrective price action in equities, a near term strengthening of the US dollar could be a headwind for oil and stocks.

Nasdaq's Market Intelligence Desk (MID) Team includes:

Michael Sokoll, CFA is a Senior Managing Director on the Market Intelligence Desk (MID) at Nasdaq with over 25 years of equity market experience. In this role, he manages a team of professionals responsible for providing NASDAQ-listed companies with real-time trading analysis and objective market information.

Jeffrey LaRocque is a Director on the Market Intelligence Desk (MID) at Nasdaq, covering U.S. equities with over 10 years of experience having learned market structure while working on institutional trading desks and as a stock surveillance analyst. Jeff's diverse professional knowledge includes IPOs, Technical Analysis and Options Trading.

Steven Brown is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq with over twenty years of experience in equities. With a focus on client retention he currently covers the Financial, Energy and Media sectors.

Christopher Dearborn is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq. Chris has over two decades of equity market experience including floor and screen based trading, corporate access, IPOs and asset allocation. Chris is responsible for providing timely, accurate and objective market and trading-related information to Nasdaq-listed companies.

Annie O'Callaghan is Director on the Market Intelligence Desk (MID) at Nasdaq. Annie has worked for NASDAQ in a variety of roles including support of Nasdaq C-level management in client retention and customer service. Annie also served as a Sales Director in Nasdaq’s Transactions Services business. Prior to joining Nasdaq, Annie worked at AX Trading, managing accounts for its Alternative Trading System and served on Credit Suisse's trading desk as an Electronic & Algorithmic Sales Trading Analyst.

Brian Joyce, CMT is a Director on the Market Intelligence Desk (MID) at Nasdaq. Before joining Nasdaq Brian spent 16 years as an institutional trader executing equity and options orders for both the buy side and sell side. He also provided trading ideas and wrote technical analysis commentary for an institutional research offering. Brian focuses on helping Nasdaq’s Financial, Healthcare and Transportation companies, among others, understand the trading in their stock. Brian is a Chartered Market Technician (CMT).

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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