US markets fall after trade deficit jumps - 6.5.2015

US stocks fell sharply on Tuesday as data from Commerce department indicated US trade deficit in March jumped to the highest level in seven years, suggesting the economy contracted in the first quarter. The S&P 500 closed 1.2% lower, recording its biggest one-day percentage decline in six weeks and erasing all the gains from the previous two sessions. As imports surged after the end of labor dispute at West Coast ports the trade deficit jumped 43 percent to $51.4 billion in March. Estimates indicate the increase in trade deficit could lower the first quarter growth by 0.6 percent, bringing the US gross domestic product reading from 0.2% to negative territory when figures are revised later this month. The dollar fell against a basket of major currencies. At the same time the Institute for Supply Management report indicated activity in the services sector, which accounts for more than two-thirds of the economy, accelerated to a five-month high in April. Investors are now anxious to see what the nonfarm payrolls will show on Friday. Today at 12:00 CET Mortgage Applications will be released in US. At 13:15 CET April ADP employment change will be released. The tentative outlook is positive for the dollar. At 14:15 Fed Chair Janet Yellen will speak at a conference on Finance and Society in Washington DC.

European stocks tumbled on Tuesday as market sentiment was undermined by concerns that Greece will not be able to come to agreement with creditors before a 750 million euro ($832 million) debt repayment to the International Monetary Fund on May 12. The pan-European Stoxx Europe 600 index fell 1.5%, Greece’s Athex Composite Index slid 3.9% and Germany’s DAX 30 index fell 2.5%. There are serious differences over pensions, labor reform and the minimum wage in negotiations with the IMF, European Commission and European Central Bank. The IMF is concerned that Greece’s debt burden is becoming unsustainable and has warned it may withhold bailout money unless the euro-zone agrees to debt relief. Euro-zone officials have categorically ruled out debt forgiveness. The European Commission upgraded its economic forecasts for euro-zone, predicting 1.5% economic growth in 2015 instead of the 1.3% forecast previously. At the same time the outlook for Greek economy was downgraded, forecasting 0.5% growth instead of 2.5%. The euro strengthened against the dollar. Today at 08:45 CET April Services and Composite PMIs for Italy will be released by Markit. The tentative outlook is positive. From 08:50 CET to 9:00 CET final April Services and Composite PMIs for France, Germany and euro-zone will be released by Markit. The tentative outlook is neutral for euro. At 10:00 CET Euro zone Retail Sales for March will be released by Eurostat. Tomorrow at 7:00 CET March Factory Orders will be released in Germany. The tentative outlook is positive.

Oil prices rallied on Tuesday as protests at a major Libyan oil port raised concerns over supply, and higher growth forecast for euro-zone boosted expectations of higher demand. Investors await today the US Crude Oil Inventories data at 15:30 CET after the American Petroleum Institute, an industry group, reported yesterday US inventories fell 1.5 million barrels last week for the first time this year.

Gold prices rose for the second day on Tuesday, helped by weaker US dollar and short covering before US nonfarm payroll report on Friday.