The writing is on the wall that it is going to be a decidedly positive start for the stock market. The S&P futures are up 29 points and are trading 1.4% above fair value. The Nasdaq 100 futures are up 90 points and the Dow Jones Industrial Average futures are up 300 points.
The bullish bias has stemmed directly from the speech made by Chinese President Xi Jinping at the Boao Forum and the conciliatory tone he struck on trade matters, saying China is going to lower import tariffs on autos, decrease duties for other products, and strengthen the protection of intellectual property rights. He also discussed opening China's financial markets further.
It was a good "talk" in light of the heated rhetoric heard of late on trade matters. In the end, though, talk is cheap if it doesn't translate into actual action. On a related note, Bloomberg is reporting that trade negotiations between China and the U.S. broke down last week when the U.S. pressed China to reduce its support of high-technology industries.
Everyone will now have to wait and see how quickly China moves on Xi's talking points, but for the time being, the stock market is breathing a sigh of relief that President Xi didn't ratchet up trade tensions with his speech.
Separately, tension is building in Washington after the FBI raided the office of President's Trump's personal lawyer. The president strongly criticized the move, expressed some pointed dissatisfaction at his attorney general, and made note of how others have urged him to fire special counsel Mueller.
The news of the raid was reportedly a catalyst for yesterday's late reversal that wiped out the majority of an earlier 1.9% gain for the S&P 500, which ended Monday up 0.3%.
Our sense of matters is that traders were engaging in some risk management ahead of Xi's speech, taking some money off the table in the event Xi inflamed trade war concerns. That inclination got the reversal ball rolling on Monday. The news of the aforementioned raid simply kept it rolling into the close.
The jump in the futures market this morning after Xi's remarks underpins the argument that yesterday's reversal had its roots in trade matters more than it did in the news of the office raid. To wit, nothing has been settled on the latter front, and yet, there is a seeming rush this morning to restore the bullish bias seen early on Monday.
The Producer Price Index (PPI) for March hasn't disrupted the bullish bias either, even though it revealed a higher than expected increase in the PPI for final demand and the PPI for final demand less food and energy. A 0.3% increase in prices for final demand services accounted for 70% of the rise in the final demand index.
Specifically, the index for final demand increased 0.3% (Briefing.com consensus +0.2%) while the index for final demand less food and energy also increased 0.3% (Briefing.com consensus +0.2%).
The month-over-month gains left the final demand index up 3.0% for the 12 months ended in March, versus up 2.8% in February, and the index for final demand less food and energy up 2.7%, versus up 2.5% in February.
The key takeaway from the report is that producer prices are trending higher, which will feed concerns about a pass through to consumers and keep the Federal Reserve wedded to its belief that inflation rates are poised to pick up, leaving it with a tightening bias.
The Consumer Price Index for March will be released tomorrow. In the interim, market participants are going to turn an anxious ear to today's Congressional testimony from Facebook (FB) CEO Mark Zuckerberg regarding the Cambridge Analytica data breach scandal. Reports indicate that testimony will start at 2:15 p.m. ET.
In other developments, Verifone (PAY) is being acquired by Francisco Partners for $3.4 billion in cash and Tenneco (TEN) is buying Federal Mogul from Icahn Enterprises (IEP) for a total consideration of $5.4 billion that includes cash, stock, and the assumption of debt.