There isn't anything in today's news cycle that is vastly different from yesterday when the S&P 500 ended the day little changed, yet the futures are sporting a positive bias that should translate to a higher start for the cash market.
The S&P futures are up three points and are trading 0.2% above fair value. The Nasdaq 100 futures are flat but trading slightly above fair value while the Dow Jones Industrial Average futures are up 101 points.
Some will point to the news of Chinese telecom equipment firm ZTE signing an agreement that will enable it to buy from U.S. suppliers again as a new development that is contributing to the positive bias, as it points to a potential easing of the trade tension between the U.S. and China.
A Commerce Department spokesperson, however, has reportedly said that ZTE and the Commerce Department have not signed a definitive agreement. So, the news on this particular front remains open to question and potentially open to negation by the folks in Congress who have not been on board with the administration's plan to get ZTE back into business.
Take this news, then, with a grain of salt when considering it as the basis for the positive bias.
In the same vein, China has reportedly offered to buy an additional $25 billion of U.S. goods to help close the trade deficit. That offer will go away, though, if the U.S. pushes ahead with tariffs on imported Chinese goods -- a tariff threat by the U.S. that still remains on the table with a proverbial shaker that contains several grains of salt.
Trade matters can shake things up in an instant, yet the stock market, for reasons that aren't entirely clear, has elected for now to steer clear of the trade spats.
In doing so, it has veered off to a rest stop that contains an island oasis offering leadership from the mega-cap technology stocks and some surprisingly outsized strength in the retail stocks.
The leadership from those areas has been a focal point and the basis for why the S&P 500 is up 0.5% this week entering today's session.
There has certainly been a less defensive feel to the market, which has been mirrored in the Treasury market. The yield on the benchmark 10-yr note is up seven basis points this week to 2.96%, including a four basis points pop today that is actually helping to lift sentiment in the futures market.
The reason being is that the backup in long-term rates is seen as a positive for the financial stocks, so there is an assumption this morning that an underperforming financial sector is going to show relative strength in the early going that will get supplemented by continued gains in the technology sector.
That connection -- leadership from the market's two most heavily-weighted sectors -- we would argue is the basis for why the cash market is expected to start on a higher note. The question is, will that bias persist into the close?
The answer will depend a lot on how those particular sectors move during the day.
Something else that looks apparent in pre-market action is that today's economic releases -- the Trade Balance Report for April and the revised first quarter productivity report -- did not have much impact. That's because they were mixed.
The trade deficit was better than expected, narrowing to $46.2 billion (Briefing.com consensus -$48.8 billion) from an upwardly revised $47.2 billion (from -$49.0 billion) in March. That narrowing was the result of exports being $0.6 billion more than March exports and imports being $0.4 billion less than March imports.
The key takeaway from the report is that the real trade deficit in April was 6.0% less than the first quarter average, which suggests net exports should be factored as a positive input for upbeat Q2 GDP growth forecasts.
Separately, there wasn't anything that was upbeat about first quarter productivity, which was revised down to 0.4% (Briefing.com consensus 0.6%) from 0.7%. Unit labor costs, meanwhile, were revised up to 2.9% (Briefing.com consensus 2.8%) from 2.7%.
The key takeaway from the report is that productivity continues to run at relatively weak levels, which will stand in the way of GDP growth maintaining an accelerated growth rate above 3.0%.