Trade War Front And Center

Thursday,May 31, 2017, 10:31 AM, EST

  • NASDAQ Composite +0.04% Dow -0.74% S&P 500 -0.34% Russell 2000 +0.24%
  • NASDAQ Advancers: 1087 Decliners: 1038
  • Today's Volume (100 day avg.) +3.5%

The market opened mixed to lower this morning with the trade war front and center again. The Trump administration announced steel and aluminum imports from Canada, Mexico and Europe will see tariffs of 25% and 10% respectively, going into effect tonight. Previously granted exemptions lapse tonight and won't get renewed (for now), but the key takeaway from this comes from Commerce Secretary Wilbur Ross - 'negotiations continue.' The announcement pushed European stocks into the red but Asian markets closed mostly higher overnight. Back in the US the R2K index continues outperforming the other majors, and most sectors are lower with Consumer Staples (-1.5%) down the most on earnings while Tech (+0.3%) is the lone bright spot. Treasuries are drifting lower, gold up 0.2% while the dollar index is flat, and WTI crude oil is down 1.6% ahead of weekly inventory data.

  • April Consumer Spending rose the most in 5 years as purchases (which account for 70% of GDP) increased by 0.6% from the prior month. Incomes advanced 0.3% which matched projections. On a year over year basis, the Fed's preferred price gauge, Core Personal Consumption Expenditures, rose 2% for a second month (ex food and energy 1.8%). The report reinforces expectations for stronger GDP growth in the second quarter amid a strong job market and the lowest unemployment rate in 17 years. In other economic news a Labor Department report showed a 13,000 drop in filings for unemployment benefits for the period ending May 26. This reinforces signs that the job market remains tight ahead of Friday's Nonfarm payroll report.
  • MSCI will hold its semi-annual index rebalance tonight at the close. These changes result from the May 2018 Semi-Annual Index Review during which companies are added to and deleted from various MSCI global indices. As a result, index fund managers will buy and sell shares of MSCI component companies to conform to new index weights. As a result, companies should expect to see elevated trading activity at the close and in the "after-hours" trading session.

Technical Take : Staples trying to turn the corner

On this final day in May nearly all sectors are in the red save technology. The worst performer is the staples sector with the XLP ETF down 1.2%. Staples have been the worst performing sector in 2018 with a YTD decline of 11.9%. The sector peaked in early February, in line with the broader markets, however it has not had the same recovery off the lows due in part to the strengthening dollar and rising rates. While the dollar remains near its YTD highs, interest have pulled back sharply with the 10-yr yield declining as much as 30bps over the last two weeks. If rates are going to remain in a sideways range for an extended period of time, the dividend paying staples good see some relief from what will be four straight month's in the red. Despite this month's decline of 1.1%, the XLP ETF has bounced 2.5% off the lows while forming a hammer bottoming pattern on the monthly candlestick. The location of the pattern is carved out across the prior pivot low from December 216 which then marked the end of a five month decline. The decline in long term momentum remains a long term concern, as evidenced by both RSI and MACD, over the near to intermediate term the staples sector could be putting in a low that could see improving absolute performance for rest of 2018.

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

Charles Brown is Associate Vice President on The Market Intelligence Desk with over 20 years of equity capital markets experience. Charlie has extensive knowledge of equity trading on both floor and screen based marketplaces. Charlie assists with the management of The Market Intelligence Desk and works with Nasdaq listed companies providing them with insightful objective trading analysis.

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.

Brian Joyce, CMT is a Managing 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).

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.

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

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