Amazon.com (AMZN) is up 9.0%; Microsoft (MSFT) is up 3.5%; and Intel (INTC) is up 6.6%. With those pre-market indications in mind, it will probably come as little surprise to hear that the Nasdaq 100 futures are up 35 points and are trading 1.8% above fair value.
What might be surprising is to hear that the S&P futures are only trading 0.3% above fair value while the Dow Jones Industrial Average futures are trading in-line with fair value.
Clearly, not all boats are rising with the Amazon, Microsoft, and Intel tide.
Starbucks (SBUX) certainly isn't. It is down 1.5% after providing some relatively disappointing same-store sales growth guidance for the year. ExxonMobil (XOM) is another notable laggard, trading down 2.2% after coming up a penny shy of the first quarter consensus earnings estimate.
These might just be knee-jerk reactions, and the complexion of the stocks could be different by the closing bell. It is a fickle stock market these days after all.
To that end, there is a wonderful headline this morning that the leaders of North Korea and South Korea, at an historic summit, signed a pact that seeks a permanent and solid peace and that they stated an aim to work toward a complete denuclearization of the Korean Peninsula.
Now, it is Kim Jong Un we're talking about, so it is fair to think this is all a show before some bad second act, yet the face value of today's headlines is all good.
The stock market, however, hasn't reacted much to it and the Treasury market is actually up for the day, meaning it hasn't coughed up any geopolitical risk premium so far in the wake of the aforementioned headlines. The 10-year yield is down two basis points at 2.97%. That is peculiar.
The release of the Advance Q1 GDP report offered a little clarity, though, as to why there hasn't been a rush out of the Treasury market this morning.
First quarter GDP increased at an annualized rate of 2.3%. That was above the Briefing.com consensus estimate of 2.1%, yet it was a deceleration from the fourth quarter growth rate of 2.9%.
The key takeaway from the report is that consumer spending was weak in the first quarter, increasing just 1.1% after increasing 4.0% in the fourth quarter. Real final sales, which exclude the change in inventories and are often viewed as the better gauge of growth, were up only 1.9% versus the prior ten quarter average of 2.2%.
There is a built-in seasonality excuse for this tepid GDP reading. We're not saying it's right; we're just saying that there is a history of a first quarter slowdown and that market participants are likely to consider the torpid consumer spending activity in the first quarter as a temporary lull in this year's projected growth action.
Separately, the first quarter employment cost index increased 0.8% (Briefing.com consensus +0.7) versus 0.6% in the fourth quarter. Wages and salaries, which comprise about 70% of compensation costs, increased 0.9%, while benefit costs jumped 0.7%.
The key takeaway from the report is that wages and salaries, and benefits, are trending higher. That will support the burgeoning inflation narrative and it will keep the Federal Reserve inclined to stay on its rate-hike path.
Compensation costs for civilian workers increased 2.7% for the 12-month period ending in March 2018 compared with a compensation costs increase of 2.4% in March 2017.
The Bank of Japan (BOJ) only wishes it could be paying more lip service to an inflation narrative. The BOJ left its monetary policy unchanged, as expected, but notably its policy statement omitted the previous reference to reaching the 2.0% inflation target in fiscal year 2019/2020.
What's that saying? If at first you don't succeed, try, try again... and if you still don't succeed, just drop a published target date.
It's probably a prudent thing to do in light of the persistent shortfall in meeting the inflation target, yet it's a stark reminder of some of the structural challenges facing Japan's economy.