It will be a weak open for the cash market today, just like it was a weak close on Friday. Currently, the S&P futures are down 16 points and are trading 0.5% below fair value. The Nasdaq 100 futures are down 54 points and the Dow Jones Industrial Average futures are down 168 points.
The weak close on Friday is one reason why today's session will start on a weak note. There are other reasons, however, and they revolve mostly around trade and economic growth concerns.
First, it was wholly disappointing to see the stock market cough up the majority of a 27-point, or 1.0%, gain on Friday as the financial sector rolled over late in the session. The S&P 500 eked out a slight gain for the day. The financial sector did not. After gaining as much as 1.8% at its high on Friday, the S&P 500 financial sector ended Friday down 0.1%.
There was no specific headline pressure on the financial sector, which is why its showing was disappointing. Many banks had announced increased capital return programs, which was good news, yet the force of underperformance that has plagued the sector throughout the year kicked in again and helped rein in the broader market.
Today, there is a bid in the Treasury market that is lowering Treasury yields and maintaining pressure on the yield curve. The spread between the 2-yr yield (2.52%) and the 10-yr yield (2.83%) is just 31 basis points.
The translation from that showing is that the financial sector will be vulnerable to underperformance again today.
The bid in the Treasury market and the weakness in the equity futures market is interconnected and linked by trade and growth concerns.
Over the weekend, President Trump told FOX News that he will not back down on China tariffs and repeated his threat to impose tariffs on imported autos from the European Union (EU) if the EU doesn't remove its trade barriers. The FT reported that the EU stands ready to retaliate with tariffs on as much as $300 billion of U.S. products if the U.S. acts on its tariff threat.
The heated trade rhetoric is a contributing factor to why there is a chill in the futures market this morning.
Another contributing factor is the election of Andrew Manuel Lopez Obrador as president of Mexico. There is some concern that the political views of Lopez Obrador could make it challenging to work out a compromise on a new NAFTA agreement.
That shouldn't be considered a major reason why the futures market is weak, though, since it has been thought for some time that Lopez Obrador would win easily -- and he did.
Separately, some weaker than expected manufacturing PMI readings out of China and the eurozone have fueled additional concerns about the unraveling of the synchronized global growth narrative.
The soft readings, which precede today's ISM Manufacturing Index for June (Briefing.com consensus 58.5; Prior 58.7) at 10:00 a.m. ET, and the sharp losses in China's Shanghai Composite (-2.5%) and Japan's Nikkei (-2.2%), are all part of why the futures market is on the defensive.
Major European bourses are also on the defensive this morning, underscoring the risk-off tone pressuring equity markets at this early stage of a holiday-shortened week for the U.S.
The stock market will close at 1:00 p.m. ET Tuesday and will be closed all day Wednesday to celebrate Independence Day. With that in mind, it isn't a stretch to think that vacation plans have thinned out some of the trading ranks and have made it a little easier to push things around in the futures market.
For the time being, push will come to shove for the cash market, which is going to be off balance at the opening bell as the price action and the macro headlines are leaning in a negative direction.