There is no mistaking the disposition of the futures market. It is positive at the moment, which means the major indices are primed to head higher at the start of trading.
The S&P 500 futures are up seven points and are trading 0.3% above fair value, the Nasdaq 100 futures are up 20 points and are trading 0.4% above fair value, and the Dow Jones Industrial Average futures are up 106 points and are trading 0.5% above fair value.
There are multiple sources of support this morning for the upward bias.
- It's the first day of a new month, which often invites new inflows
- China's Caixin Manufacturing PMI reading for July was stronger than expected at 51.1 (prior 50.4). This report is seen as a better gauge of manufacturing conditions since it is derived from smaller manufacturing companies as opposed to the larger state-owned enterprises that drive the official Manufacturing PMI report.
- The preliminary Q2 GDP report for the eurozone showed continued economic momentum, with growth up 0.6% quarter-over-quarter (prior 0.5%) and 2.1% year-over-year (prior 1.9%)
- Earnings news continues to roll in better than expected
- Market participants are sniffing the prospect of progress on tax reform efforts; and
- Ongoing buying momentum in large-cap, blue chip stocks
The Personal Income and Spending report for June can be added to the mix as the key takeaway from the report is that it supported the market's preconception that the Fed is unlikely to raise the target range for the fed funds rate at its September meeting.
Personal income was unchanged in June (Briefing.com consensus +0.3%) while personal spending was up 0.1% as expected. The data were embedded in the advance Q2 GDP estimate released on Friday. The PCE Price Index was unchanged in June while the core PCE Price Index, which excludes food and energy, increased 0.1% as expected.
The PCE Price Index is up 1.4% for the 12 months ending in June versus 1.5% for the 12 months ending in May. The core PCE Price Index is up 1.5%, which is unchanged from the 12-month period ending in May. The trend of disinflation is moderating, then, yet the inflation rate still remains below the Fed's longer-run target of 2.0%.
The ISM Manufacturing Index for July (Briefing.com consensus 56.2; prior 57.8) will be released at 10:00 a.m. ET along with the Construction Spending report for June (Briefing.com consensus +0.5%; prior 0.0%). Auto and truck sales for July will be released throughout the day.
The report on everyone's mind, however, isn't due out until after the close and that is the earnings report from Apple (AAPL). Market participants are waiting anxiously for commentary on the timeline for the iPhone 8 release.
To be sure, there has been a copious amount of commentary on yesterday's news that Anthony Scaramucci got fired/offered his resignation as White House Communications Director after only 10 days with the title role.
The gist of things is that his departure underscores the influence of new Chief of Staff John Kelly who, with his long military background, should ensure that the White House operates in a tighter, more disciplined manner.
More than a few talking heads we heard also suggested that Mr. Kelly's leadership style raises the chances of getting a tax reform deal done. That may be giving a little more credit than is due at the moment since Mr. Kelly doesn't run the House or the Senate, but we shall see.
The point is that the stock market didn't react much at all yesterday to the dysfunctional aspect of Mr. Scaramucci's departure, which was consistent with its past behavior toward headline drama out of Washington. All the stock market remains concerned with is that tax reform follows function, and Mr. Kelly will presumably improve the functioning of that process.
Hence, some tax reform optimism can be cited as a supportive element in the early-going here that is keeping buyers in the mix.