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Given what transpired across global markets on Monday, we should probably start with the observation that the yen is weaker against the dollar this morning. The USD/JPY pair trade is +0.5% to 144.83.
The second observation is that Japan's Nikkei soared 10.2% on Tuesday following Monday's 12.4% crash, which had the yen's rapid strengthening acting as a precipitant for the sell-off.
Accordingly, things are calmer this morning.
There is some buy-the-dip interest that has been helped along by the observation from San Francisco Fed President Daly (FOMC voter) that policy adjustments will be necessary in the coming quarter. Exactly when and by how much, she noted, will depend on the incoming information.
Well-received earnings reports from Dow component Caterpillar (CAT), which is up 3.5% in pre-market trading, and Uber (UBER), which is up 8.2% in pre-market trading, are other helpful factors for the rebound interest.
Still, it is fair to say that it is not a hard-charging rebound effort given the scope of recent losses.
Currently, the S&P 500 futures are up 21 points and are trading 0.4% above fair value, the Nasdaq 100 futures are up 85 points and are trading 0.5% above fair value, and the Dow Jones Industrial Average futures are up 136 points and are trading 0.3% above fair value.
The carry-trade unwinding might have settled down for now, but this market is understandably leery of it revving back up given how entrenched it had become with Japan holding rates below zero, or near zero, for so long.
The market is also leery of the U.S. economy slowing more quickly than it had previously believed it would; and it is also more leery of the Fed making (or having already made) a policy mistake by keeping the target range for the fed funds rate unchanged at 5.25-5.50%.
Consequently, it may take some added time for the dust to settle around the corrective activity taking place in the stock market, which is to say trading conditions are likely to remain fickle.
There was some better economic data this morning, however.
The trade deficit narrowed to $73.1 billion in June (Briefing.com consensus $72.8 billion) from an upwardly revised $75.0 billion (from -$75.1 billion) in May with exports exceeding imports by $1.9 billion.
The key takeaway from the report, though, is that both exports and imports increased in June, which is a constructive trade dynamic for the global economy.
The Treasury market took this news in stride. The 2-yr note yield is up five basis points to 3.93% and the 10-yr note yield is up five basis points to 3.83%, with most of that action taking place in the overnight trade.
What happens in the cash session now is what everyone is waiting to see. That is especially true for stocks, which have some real proving ground to cross given how they have been upended so quickly and so sharply.
The inference is that market participants will need/want to see the early gains maintained and not a renewed inclination to sell into strength.
