The trade truce has been struck between Presidents Trump and Xi. There will be no new tariffs (for now) and negotiations aimed at getting a comprehensive trade deal done will continue. That outcome was in-line with the market's consensus view ahead of Saturday's meeting, which still produced a surprise factor or two.
The first surprise was the added acknowledgment by President Trump that he would relax restrictions on U.S. companies selling products to Huawei that do not impact national security; however, U.S. companies still cannot import Huawei products.
The latter caveat notwithstanding, news of the relaxed restrictions and the agreement not to impose new tariffs is giving a host of semiconductor, and related technology stocks, a solid boost in pre-market action.
A lot of stocks, though, besides technology stocks, are getting a lift ahead of the open. That is the second surprise factor.
The consensus view of the meeting played out, so one could reasonably expect to see a relatively muted reaction. The Huawei twist, however, and the rather strong response to an expected outcome, has in one sense triggered a flat squeeze.
In other words, there is a fear among sidelined participants of missing out on further gains, so they are pressing to chase this market higher.
The S&P 500 futures are up 34 points and are trading 1.1% above fair value. The Nasdaq 100 futures are up 140 points and are trading 1.8% above fair value. The Dow Jones Industrial Average futures are up 264 points and are trading 1.0% above fair value.
There is no mistaking the fact either that the opening move is going to be trade related. We say that knowing that a host of manufacturing PMI readings for June out of Asia and Europe were disappointing.
Official manufacturing PMI readings for China, Japan, the eurozone, Germany, Italy, Spain, and the UK were all below 50.0, which is the dividing line between expansion and contraction.
That's not good economic data, yet major indices in China, Japan, and Europe have all traded noticeably higher on Monday. The Shanghai Composite jumped 2.2%; the Nikkei advanced 2.1%; and Germany's DAX index is up 1.3%.
The ISM Manufacturing Index for June (Briefing.com consensus 51.5; Prior 52.1) will be released at 10:00 a.m. ET.
The great offset to weak data these days, though, is the idea that it will invite more accommodative monetary policy from the world's leading central banks. That's a distorted way to assess bad economic news, yet it has become a trusted instinct knowing how well global equity markets have held up in the face of weakening growth.
There could be a day of reckoning eventually for that mindset, but it won't be this day.
This day might not end as strong as it begins, yet there are news-based support factors for a number of the market's most influential sectors.
The information technology, consumer discretionary (particularly retail), industrials, and materials sectors will be helped by a sense of relief that no new tariffs are coming at this point; the financial sector should be pleased to see market rates backing up a bit; and the energy sector should be bolstered by the jump in oil prices ($60.02, +1.55, +2.7%) that has followed the news that OPEC agreed to extend its oil cut production by nine months, according to CNBC.
In brief, there will be a lot of support to go around for an opening rally to begin July and the second half of the year, which comes on the heels of a remarkable first half of the year that saw the U.S. equity market climb an Everest-size wall of worry aided by its central bank sherpas.