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We feel like we are in a box of chocolates market, which is to say you never know what you're going to get.
This morning, the equity futures market is pointed higher following a 3.5% decline for the cash market on Thursday, which followed a 9.5% gain for the cash market on Wednesday, which followed a 1.6% decline for the cash market on Tuesday, which followed a 0.2% decline for the cash market on Monday.
Currently, the S&P 500 futures are up 15 points and are trading 0.2% above fair value, the Nasdaq 100 futures are up 31 points and are trading 0.1% above fair value, and the Dow Jones Industrial Average futures are up 124 points and are trading 0.2% above fair value.
It is a trade that looks good on the surface, knowing that it has been supported by better-than-expected earnings results from JPMorgan Chase (JPM), Morgan Stanley (MS), Wells Fargo (WFC), BlackRock (BLK), and Bank of New York Mellon (BK). It is unclear, however, how solid the moorings are, also knowing that China fired back at the U.S. with a 125% retaliatory tariff rate for imported U.S. goods and said if the U.S. continues to impose tariffs on Chinese goods exported to the U.S., China will ignore it.
That view is unlikely to sit well with President Trump, so the response ball is back in his court.
The tariff war has diluted the good earnings news from the financial sector and the growth outlook in general. JPMorgan Chase CEO Jamie Dimon had this to say in conjunction with today's earnings report:
"The economy is facing considerable turbulence (including geopolitics), with the potential positives of tax reform and deregulation and the potential negatives of tariffs and "trade wars," ongoing sticky inflation, high fiscal deficits and still rather high asset prices and volatility. As always, we hope for the best but prepare the Firm for a wide range of scenarios."
His macro views generally command added attention. In fact, President Trump made note of the recession comments Mr. Dimon made Wednesday as contributing to his decision to announce a 90-day pause on reciprocal tariffs for many countries.
Another item commanding more of the market's attention is the weakening of the dollar. The U.S. Dollar Index is down another 1.2% today to 99.69, continuing to lose ground against the euro, yen, British pound, and Swiss franc. Ostensibly, this weakness is related to growth concerns for the U.S., deficit concerns for the U.S., and waning confidence in U.S. assets on the part of foreign investors given the policy volatility.
Strikingly (and maybe tellingly), the 10-yr note yield is up five basis points to 4.44% following another friendly inflation report.
The Producer Price Index for final demand decreased 0.4% month-over-month in March (Briefing.com consensus 0.1%) following an upwardly revised 0.1% increase (from 0.0%) in February. The Core Producer Price Index for final demand, which excludes food and energy, decreased 0.1% month-over-month (Briefing.com consensus 0.3%) following an upwardly revised 0.1% increase (from -0.1%) in February.
On a year-over-year basis, the index for final demand was up 2.7% versus 3.2% in February, and the index for final demand, less food and energy, was up 3.3% versus 3.5% in February.
The key takeaway from the report is that inflation for wholesalers was suppressed in March; however, that good news is being discounted (like yesterday's CPI report was) as temporary given that tariff actions are taking root in supply chains and are expected to lead to higher prices at least in the short term.
There will be an important inflation read at 10:00 a.m. ET when the preliminary April University of Michigan Consumer Sentiment Report is released. Market participants will be interested to see what the sentiment reading is, but the focal point will be the changes to year-ahead and long-term inflation expectations, the latter of which is an important component in terms of the Fed's monetary policy settings.
