The stock market is getting stuck in another trade headline rut. At the same time, it is digesting some additional data that suggests the European economy remains stuck in its economic rut. Accordingly, the futures market is spinning its wheels and kicking up mud that is going to make for a messy open.
The S&P futures are down 23 points and are trading 0.8% below fair value. The Nasdaq 100 futures are down 80 points and are trading 1.1% below fair value. The Dow Jones industrial Average futures are down 229 points and are trading 0.9% below fair value.
The main story line is that the market is finding more reason to think the "little squabble" with China over trade is about more than trade and will presumably carry on for some time without a solution. Factors contributing to that sense of things this morning include:
- The stated view from a China Commerce Ministry spokesperson that trade talks can't continue until the U.S. "adjusts its wrong actions."
- Reports that more companies, including those outside the U.S., like ARM Holdings, are cutting ties with Huawei.
- Secretary of State Mike Pompeo's assertion in a CNBC interview that he believes China presents a risk to national security and that he expects more companies to eliminate ties with Huawei, which he added is not telling the world the truth about its connection to the Chinese government.
That's the news and it is prompting a knee-jerk response to sell into it.
The same goes for the news out of Europe, which includes speculation UK Prime Minister May could step down as early as Friday due to the dissension caused by her inability to craft an agreeable Brexit plan, and reports that business confidence in Germany fell to its lowest level since 2014 while the preliminary manufacturing PMI for the eurozone for May registered its fourth straight reading below 50.0, which is indicative of contraction.
Throw into the mix some disappointing corporate headlines, like NetApp (NTAP) disappointing with its earnings results and guidance, and the certification of Boeing's (BA) 737 MAX perhaps still being months away, according to FT, and there are excuses on nearly all fronts to do some selling.
To be fair, the weekly initial claims report didn't offer a ready excuse.
Initial claims for the week ending May 18 decreased by 1,000 to 211,000 (Briefing.com consensus 218,000), lowering the four-week moving average by 4,750 to 220,250. Continuing claims for the week ending May 11 increased by 12,000 to 1.676 million.
The key takeaway from the report is that the low level of initial claims is consistent with a labor market that should still be producing solid nonfarm payroll gains.
The latter hasn't accounted for much. The futures have remained stuck near the deepest part of their morning rut, as the combination of trade concerns and global growth concerns are weighing on sentiment in the stock market and driving some safe-haven buying in the Treasury market.
The 10-yr yield is down three basis points to 2.36%, marking a new low for the year.