The stock market is on course to start today's session on a positive note, bolstered by M&A activity and the news that the U.S. is not going to impose a 5% tariff on imported goods from Mexico after all. The S&P futures are up 13 points and are trading 0.4% above fair value.
The latter news broke late Friday, but it comes with an asterisk. The tariff threat is being "indefinitely suspended," which is to say it could be imposed down the road if the U.S. feels Mexico is not complying strongly enough with an agreement to curb the flow of illegal immigrants into the U.S.
So, it's a bit of a carrot-and-stick agreement for the market to take in, but for now the news is helping to further last week's rebound effort.
The same can be said for the surprising news that Raytheon (RTN) and Dow component United Technologies (UTX) are tying up in an ~$120 billion all-stock merger of equals. At the same time, Salesforce (CRM) announced it will acquire Tableau Software (DATA) in a $15.7 billion stock transaction, which translates to a 42% premium over Friday's closing price for DATA shareholders.
The size of the deals, and the high profile of the companies involved, has generated some trading buzz that is nice to hear, because it has nothing to do with trade matters. It's just a good, old-fashioned merger Monday that is providing a reprieve of sorts from all-things trade.
Trade matters, however, haven't been pushed aside. They remain a central part of the market narrative.
To that end, Treasury Secretary Mnuchin met with PBOC Governor Yi at the G-20 finance ministers' meeting over the weekend. The talks were reportedly "candid," which likely means the finger pointing for lack of a trade deal was a mutual one and that nothing happened to change the currently flat trajectory for a trade deal.
On a related note, China reported a 1.1% yr/yr increase in exports for May and an 8.5% yr/yr decline in imports. The export increase is being seen by many as a byproduct of getting in front of potentially higher tariff rates down the road while the import decline is generally being regarded as a sign of softness in China's domestic economy.
None of this news seemed to upend China's stock market. The Shanghai Composite increased 0.8% on Monday, presumably heartened by the idea that the import weakness could be a ticket to additional policy stimulus.
Thoughts about monetary policy stimulus were a ticket to huge gains in the U.S. stock market last week and those thoughts won't fall by the wayside easily now that Fed officials, including Fed Chair Powell, have made it sound like the Fed is leaning toward the need for a rate cut soon.
The fed funds futures market and Treasury market have all but forced the Fed to go there, which is the analytical focus of The Big Picture column we published on Friday.
The Treasury market for its part is on the defensive this morning as some of the safety trade related to the Mexico tariff matter is being taken off. The 10-yr note yield is up three basis points to 2.11%, yet it's still down 57 basis points this year.