U.S. stocks will open lower Thursday as declines in commodities across the board are lowering risk appetite. With non-farm payrolls tomorrow, investors will probably not increase exposure unless today’s initial jobless claims surprise.
Initial jobless claims could stop the bleeding
The S&P 500 Index futures are currently 0.4 percent lower ahead of the open. The most important economic figure today is U.S. initial jobless claims that are expected (12:30 GMT) to come out at 410K compared to 429K in the prior reading as they continue their trend towards sustainable levels below 400K. Better than expected jobless claims figures could be the medicine that investors need to calm down before tomorrow’s big number (non-farm payrolls). However, with weak earnings in Europe and declining commodity prices even better than expected jobless claims may not pull stocks into the green.
Europe continues down, German factory orders down 4% MoM
In Europe, the Euro STOXX 50 Index futures are down 0.9 percent driven by declines in Vivendi (-7.3%), Allianz (-4.1%) and Societe Generale (-3.9%). The index has declined 3.1 percent alone since yesterday’s intraday peak at 3,008.76 (see chart below). In general, earnings have been mixed in Europe and todays are not different with Societe Generale’s earnings release as the most important. The bank’s earnings came in less than anticipated due to a charge on its own debt and provisions resulting from turmoil in Egypt.
Source: Bloomberg
In Germany, factory orders in March fell 4.0 percent month-over-month resulting in a 9.7 percent year-over-year growth compared to 20.1 percent in February. The steep decline was driven by engineering and automobile sectors whose growth rates are linked to emerging markets (in particularl India and China) and as those countries continue to hit the brakes Germany could face a significant slowdown in its growth. For Europe this is not good as Germany remains the only jet engine probably working and is the key to the financing of Europe’s troubled countries.
Later the European Central Bank is expected (11:45 GMT) to keep interest rates put as the Bank of England did earlier in the session (11:00 GMT) because the Eurozone’s economic growth is still sluggish and for the short-term more important than inflation.
Emerging markets still under pressure as World Food Index goes higher
The UN’s Food and Agriculture World Food Price Index climbed 0.5 percent in April following the first decline in eight months in March. The continuing inflationary pressures from rising food prices are hurting emerging markets and will force central banks there to continue monetary tightening. On that note we would still underweight emerging markets compared to U.S. stocks.
Source: Bloomberg