You don't need to look at the futures market these days to get a sense of how the stock market might open. The Treasury market seems to provide just as good a tell. To that end, the 10-yr yield has dropped five basis points to 2.18% while the 2-yr yield has dropped six basis points to 2.00%, so you know there is a bid to de-risk this morning.
That bid has stemmed from President Trump's announcement that the U.S. is going to impose a 5% tariff on all goods imported from Mexico, effective June 10, in an effort to get Mexico to do more to stop the flow of illegal immigrants into the U.S.
If the U.S. doesn't believe Mexico has done enough, the tariff rate will increase in 5% increments on the first of every month until it reaches 25% on October 1, where it will remain permanently until the U.S. concludes Mexico has substantially curbed the flow of illegal immigrants through its territory and into the U.S.
Market participants are clearly anxious about the implications of this tariff action, fearing the specter of higher prices for consumers, particularly on cars imported from Mexico, lower profit margins for U.S. importers, and slower growth.
The growth concerns have already manifested themselves in the trade standoff with China, which doesn't appear close to being resolved following press reports this morning that China is preparing a list of foreign entities it considers to be working against Chinese interests.
On a related note, China's official manufacturing PMI for May slipped back into contraction territory, checking in at 49.4 versus 50.1 in April. The dividing line between expansion and contraction is 50.0.
Basically, then, there is a lot of angst this morning about the growth outlook and the torrent of uncertainty pertaining to trade dealings. That's why bonds are rallying, oil and copper prices are sinking, and equity index futures are sharply lower.
At the moment, the S&P futures are down 30 points and are trading 1.0% below fair value. The Nasdaq 100 futures are down 93 points and are trading 1.2% below fair value. The Dow Jones Industrial Average futures are down 260 points and are trading 1.0% below fair value.
The Personal Income and Spending report for April has helped a little bit, as the income and spending data were stronger than expected while the PCE Price Index left the impression that overall inflation pressures remain muted.
Specifically, personal income increased 0.5% (Briefing.com consensus 0.3%) on top of a 0.1% increase in March. Personal spending rose 0.3% (Briefing.com consensus 0.2%) on top of an upwardly revised 1.1% increase (from 0.9%) in March. the PCE Price Index was up 0.3% m/m, as expected, while the core PCE Price Index, which excludes food and energy, jumped 0.2%, as expected.
With the latest monthly changes, the PCE Price Index was up 1.5% yr/yr, versus 1.4% in March, while the core PCE Price Index was up 1.6% yr/yr, versus 1.5% in March.
The key takeaway from the report is that real PCE was unchanged in April. That will be another data point that leads to forecasts calling for much slower real GDP growth in the second quarter than the 3.1% real GDP growth seen in the first quarter.
Shifting gears, Uber (UBER) delivered its first quarterly report as a public company. It did better than feared, posting a net loss of "only" $1.01 billion, which was at the high end of the company's guidance range of ($1.11)-($1.0) billion. Shares of UBER are indicated 2.1% higher.
Uber could use the lift (no pun intended), as its stock has performed poorly since its ballyhooed IPO.
The stock market could use a lift, too, but it's not going to get one at the open. The early selling interest will drop the S&P 500 below its 200-day moving average (2776).
That could be a make-or-break move for the market's near-term direction. It has been defended the last two sessions. If it is defended again, there could be quite the reversal today. If it isn't, the month of May could go out like a lamb on its way to becoming a gyro.