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U.S. Stocks Slip as Europe’s Growth-Generating Efforts Studied

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December 3, 2015

A choppy stock trading day may follow closely watched news from across the Atlantic, where the European Central Bank cut a deposit rate and took other measures but may not have gone as far as some market watchers expected (more from the ECB below). Emphasis in recent trading days has obsessed over the gap in interest rate policy between the ECB and the Federal Reserve—which holds implications for an already strong dollar.

No surprise if trading thins in the afternoon as many traders may adopt defensive precaution ahead of what’s likely to be a market-moving U.S. jobs report issued Friday morning. It will be the final big-picture employment release ahead of the Fed’s December 15-16 policy meeting.

That’s a meeting that most on Wall Street expect to end in action. In a Wednesday speech, Fed Chair Janet Yellen sounded more hawkish toward upcoming interest rate policy decisions than Wall Street was prepared for, according to several analyst notes. Her remarks accompanied a softer-than-expected manufacturing report. Yellen will make another appearance on Thursday, giving testimony to the Joint Economic Committee of Congress at 10 a.m. Eastern. Short-term Fed funds futures market traders have priced in a 75% chance that the Fed activates the first interest rate hike since 2006 when it wraps that two-day session on December 16, according to pricing calculations provided on the CME Group’s FedWatch Tool. Now, traders are trying to speculate on how aggressively the Fed could move in its pledged efforts to return policy to “normal” after extreme measures were put in place during the last recession.

The Dow Jones Industrial Average ($DJI) dipped into negative territory for the year in Wednesday’s downbeat session across the major averages. Stocks fell in part after oil prices tumbled below $40 a barrel following a surprise rise in crude supplies and ahead of late-week OPEC meetings. The S&P 500 (SPX) shed over 20 points (figure 1).

SPX-stock-chart

FIGURE 1: BACKPEDAL.

The S&P 500 (SPX), charted on the thinkorswim® platform, tickled the psychologically significant 2100 line in Tuesday’s session but has had trouble with a repeat. Data source: Standard & Poor’s. For illustrative purposes only. Past performance does not guarantee future results.

Europe Tries Again. The European Central Bank on Thursday further cut its deposit rate into negative territory. The ECB dropped the deposit rate on money parked at the central bank overnight to minus 0.3% from minus 0.2%. The ECB left its key lending rate unchanged at 0.05% and the rate on its marginal lending facility at 0.3%. In his follow-up news conference, ECB President Mario Draghi said the panel will extend its asset-buying program through March 2017. The news sent the euro to a two-week high against the dollar. European stocks were sluggish at first but firmed even as U.S. stock indicators remained in the red during the Draghi briefing.

Dollar General Warns. Dollar General (SG) on Thursday reported profit that just topped Wall Street expectations as its traffic improved, though the company trimmed sales guidance for the year. For the fiscal year ending in January, Dollar General said it’s now expecting comparable sales growth of 2.5% to 2.8%, down from its prior guidance for growth of 3% to 3.5%.

Yahoo Still in the Spotlight. Yahoo (YHOO) remains among the morning’s leading headlines as The Wall Street Journal reports several potential suitors have emerged for YHOO’s core Internet business. Verizon Communications (VZ) and Barry Diller’s IAC/InterActive (IACI) are among the companies interested, the WSJ says, citing people familiar with the matter.

Good Trading,

JJ

@TDAJJKinahan

economic report calendar

FIGURE 2: ECONOMIC AGENDA.

This week’s U.S. economic report calendar. Source: Briefing.com.

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JJ Kinahan

JJ began his career in 1985 as a Chicago Board Options Exchange...

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