The tenor of the major headlines today is a little more positive sounding, yet that has seemingly failed to lift the spirits of futures traders. At the moment, the S&P futures are down four points and are trading 0.1% below fair value.
Buyers have been slow to engage thus far despite some positive headline catalysts that have included the following:
- Delta Air Lines (DAL) reporting better-than-expected first quarter earnings and issuing upbeat passenger unit revenue guidance for the second quarter
- Press reports suggesting a military option for dealing with North Korea is not the first option being discussed by the Trump Administration
- There are separate reports indicating Chinese President Xi Jinping called President Trump to lobby for a peaceful resolution
- IDC reporting the first year-over-year increase in PC shipments (+0.6%) since the first quarter of 2012
- The American Petroleum Institute reporting a weekly drawdown in crude (-1.3 mln), gasoline (-3.7 mln), and distillates (-1.6 mln) stockpiles, which is lending further support to oil prices ($53.63, +$0.23, +0.4%); and
- Some positive coverage in The Wall Street Journal for the banks and their earnings prospects ahead of Thursday's reports from JPMorgan Chase (JPM), Citigroup (C), and Wells Fargo (WFC)
Readers may be wondering, then, what the real hang up is this morning. We're admittedly a little surprised ourselves that the early bias isn't more positive.
After all, it was a moral victory for the bulls yesterday that the S&P 500 managed to pare its losses in the afternoon session and secure a close above the 50-day simple moving average, which has been a mainstay of technical support since the election.
One point of hesitation could be the meeting between Secretary of State Tillerson and Russian Foreign Minister Lavrov to discuss the Syrian situation, which is serving as a reminder that geopolitical risk has not vanished overnight. The relative lack of selling in sovereign bond markets attests to that understanding.
Another point of hesitation, or awareness, is that the stock market could be confronted with tax-related selling as investors look to raise cash to make income tax payments due April 18. Even so, with the recent spike in the CBOE Volatility Index (up 25% month-to-date) and the relative strength in Treasuries, our contention is that the market has other hang-ups on its mind than possible tax-related selling.
There has also been some attention called to the CPI and PPI data reported by China for March. Neither report featured an upside surprise. CPI was up 0.9% year-over-year and PPI was up 7.6%, compared to increases of 0.8% and 7.8%, respectively, in February.
The slight softening in PPI has been billed by some as a disappointment, yet in the context of budding inflation concerns, the deceleration, if anything, should be seen as a positive. Still, with the understanding that the PPI increase is close to the highest it has been since September 2008, the inflation concern factor remains in play.
On a related note, U.S. import prices declined 0.2% month-over-month in March, driven down by lower fuel import prices, but are up 4.2% year-over-year. Excluding fuel, import prices increased 0.2% and are up 1.0% year-over-year versus being down 2.5% for the 12-month period from March 2015 to March 2016. That is the largest year-over-year increase since April 2012.
U.S. export prices rose 0.2% month-over-month in March, helped by higher prices for agricultural exports and nonagricultural exports, and are up 3.6% year-over-year. Excluding agricultural exports, prices also increased 0.2% month-over-month and are up 3.3% year-over-year versus being down 5.8% for the 12-month period from March 2015 to March 2016. That is the largest year-over-year increase since December 2011.
The Treasury market was undeterred by the report. In fact, buying interest picked up a bit at the back end of the curve where the 10-yr note yield has hit 2.29%, breaching a key yield support level at 2.30%.
That level will be watched closely today as will the price level for the S&P 500, which is finding it more challenging these days to determine what price is right in an environment of heightened uncertainty and high valuations waiting to be supported by upcoming earnings results and tax reform legislation.