The futures for the major indices are pointing higher, but if yesterday was any indication, you can't extrapolate anything more from the indication than what it is: an opening indication.
Trading sentiment can change on a dime -- and there are a lot of dimes being dropped with trade-related headlines.
It was a great relief for the market to hear yesterday that it sounds like the president is going to forestall a decision on auto tariffs for up to six months. The implication is that the U.S. will be concentrating its trade negotiation efforts on China and won't escalate the trade uncertainty with a new tariff battle on another front.
There was relief, too, in the report that there could soon be a proposal with Canada to remove steel and aluminum tariffs.
Today's relief point is a Wall Street Journal article highlighting the possibility of Treasury Secretary Mnuchin and U.S. Trade Representative Lighthizer heading to Beijing the last week of May to continue trade talks.
This news has taken precedence over a separate report indicating President Trump signed an executive order that lays a foundation for preventing U.S. companies from doing business with Chinese telecom equipment firm Huawei, among others deemed to pose a threat to U.S. national security interests.
Currently, the S&P futures are up eight points and are trading 0.4% above fair value. The Nasdaq 100 futures are up four points and are trading 0.2% above fair value. The Dow Jones Industrial Average futures are up 87 points and are trading 0.5% above fair value.
The nicest thing about the futures indication this morning, however, is that it isn't wrapped up entirely in trade issues. There is some other news outside of trade and it is mostly good news that justifies the early positive bias.
To begin, Dow components Cisco (CSCO) and Walmart (WMT) both reported better-than-expected earnings and provided a reassuring outlook. Those stocks are up 3.6% and 2.5%, respectively, in pre-market trading.
Beyond the corporate news, there was relatively good economic news that tempered the sting from yesterday's weak retail sales and industrial production reports for April.
- Housing starts increased 5.7% m/m in April to a seasonally adjusted annual rate of 1.235 million (Briefing.com consensus 1.200 mln), led by a 6.2% increase in single-unit starts. Building permits rose 0.6% m/m to 1.296 million (Briefing.com consensus 1.280 mln), although permits for single-unit dwellings declined 4.2%.
- The key takeaway from the report, however, is that there hasn't been any acceleration in building activity. Total housing starts are down 2.5% yr/yr and single-unit starts are down 4.3% yr/yr.
- Initial claims for the week ending May 11 decreased by 16,000 to 212,000 (Briefing.com consensus 222,000). Continuing claims for the week ending May 4 decreased by 28,000 to 1.66 million.
- The key takeaway from the report is that the initial claims level remains consistent with a tight labor market that is expected to translate into another month of solid nonfarm payrolls growth.
- The Philadelphia Fed Index for May jumped to 16.6 (Briefing.com consensus 7.5) from 8.5 in April. The dividing line between expansion and contraction is 0.0.
- The key takeaway from the report is that firms were more optimistic about hiring plans over the next six months, which suggests they expect end demand to remain solid.
The general tone of things this morning has take some wind out of the Treasury market's sails. The 10-yr note yield is up two basis points to 2.40% while the 2-yr note yield is up four basis points to 2.20%.