Treasury Secretary Mnuchin said over the weekend that the U.S. was putting the trade war with China "on hold" following last week's trade negotiations that reportedly yielded a pledge by China to buy more goods from the U.S. In addition, the $150 billion of proposed tariffs on Chinese goods will be halted for now as the two sides continue to talk.
The qualitative nature of the remarks was encouraging, yet there were no specific details on how much the trade deficit with China will be reduced based on its stated willingness to buy more goods from the U.S. It is the Treasury Secretary's expectation that, among other things, there will be a 35-40% increase in agricultural exports and a doubling of energy exports to China.
Not surprisingly, the knee-jerk response to the "on hold" status of the trade war has been positive, yet there was the requisite caveat that tariffs could be imposed if China doesn't follow through on the commitment to buy more goods from the U.S. that reduces the trade deficit.
The S&P futures are up 15 points and are trading 0.6% above fair value. The Dow Jones Industrial Average futures are up 213 points and the Nasdaq 100 futures are up 53 points.
There is little question that the opening move for the stock market is going to be higher, yet that move isn't just about the trade headlines. Some other headlines are helping, too.
Semiconductor company Micron (MU) increased its fiscal third quarter guidance ahead of its Investor Day today and there are a few M&A deals of note that have helped underpin this morning's bullish bias.
General Electric (GE) is going to merge its transportation business with Wabtec (WAB) in an $11.1 billion tax-free transaction. GE will receive $2.9 billion in cash at closing and will receive a 50.1% ownership interest in the combined company.
Separately, Fifth Third Bancorp (FITB) is going to acquire MB Financial (MBFI) in an approximately $4.7 billion cash-and-stock transaction. The total consideration amounts to MBFI shareholders receiving $54.20 per share, which is a 24.2% premium over Friday's closing price.
The FITB-MBFI deal should be a supportive factor for the SPDR S&P Regional Banking ETF (KRE), yet it remains to be seen if it will lift the broader financial sector given the curve-flattening trade that is prevailing in the Treasury market at the moment.
The spread between the 10-yr note yield and the 2-yr note yield has narrowed two basis points to 51 basis points. That's not a major move, yet the financial sector has often underperformed when there is a flattening trade in the Treasury market.
There isn't any economic data of note on today's calendar, so the stock market will be left mainly to its own devices.
Those devices are turned up right now primarily because the volume about a trade war with China has been turned down.