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News of a trade deal between the U.S. and the UK, which isn't really a big trading partner, has nonetheless elicited a big response.
Currently, the S&P 500 futures are up 42 points and are trading 0.7% above fair value, the Nasdaq 100 futures are up 219 points and are trading 1.1% above fair value, and the Dow Jones Industrial Average futures are up 210 points and are trading 0.5% above fair value.
The trade deal will be announced by President Trump at 10:00 a.m. ET, and it follows on yesterday's news that the Trump administration will revoke the Biden administration's "AI Diffusion" rule meant to curtail AI chip exports. That news came yesterday just after Fed Chair Powell ended his press conference, and it fueled a nice rally into the close.
There has been some carryover interest this morning that has aided the market's positive disposition.
The primary catalyst, though, is the trade deal news, which itself is not a big deal, yet it is big in the sense that it is "the first" and sets the table for the market that it should expect more deals in coming weeks and months. From that vantage point, it is providing a sentiment boost.
Other items holding the line for the equity futures market, but not necessarily giving it more thrust beyond the trade headline, include the Bank of England lowering its key policy rate by 25 basis points to 4.25%, as expected; a load of earnings results since yesterday's close that carried mixed guidance indications; and some mixed economic data.
The weekly initial jobless claims report held some good news. Initial jobless claims for the week ending May 3 decreased by 13,000 to 228,000 (Briefing.com consensus 238,000), while continuing jobless claims for the week ending April 26 decreased by 29,000 to 1.879 million.
The key takeaway from the report is the step down in initial jobless claims -- a leading indicator -- from the prior week, as it leaves initial claims at a level that is consistent with a fairly solid labor market and far from recession-like levels.
The preliminary Q1 Productivity Report held some bad news. Nonfarm business sector labor productivity decreased 0.8% in the first quarter (Briefing.com consensus -0.4%), with output down 0.3% and hours worked up 0.6%. That was the first decline in productivity since the second quarter of 2022. Unit labor costs surged 5.7%, reflecting a 4.8% increase in hourly compensation and a 0.8% decrease in productivity.
The key takeaway from the report is the jump in unit labor costs stemming from the weak productivity, although the first-quarter earnings reports in aggregate have not conveyed any strong profit margin pressures as a result of higher labor costs.
The 2-yr note yield is up three basis points to 3.82%, and the 10-yr note yield is up two basis points to 4.30%, both little changed since the 8:30 a.m. ET releases. Separately, the Treasury market will be digesting a $25 billion 30-yr bond auction, with results due at 1:00 p.m. ET.
