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The stock market has been given its fair share of macro news to chew on today. The equity futures market took it in and looked like it had a little indigestion until it was learned that President Trump and President Xi had a phone call. There were no details on what was discussed, but the equity futures market, which was little changed before that news, took a turn higher after it was reported.
Currently, the S&P 500 futures are up 15 points and are trading 0.3% above fair value, the Nasdaq 100 futures are up 49 points and are trading 0.3% above fair value, and the Dow Jones Industrial Average futures are up 104 points and are trading 0.3% above fair value. These indications support a higher start for the major indices.
The stock market has traded more timidly of late, mindful that it has come a long way in a short period of time and mindful that there are a number of loose ends out there on the tariff front, not the least of which is the direction the U.S.-China trade relationship is headed.
One thing that became crystal clear this morning is that the trade deficit plunged in April to $61.6 billion (Briefing.com consensus -$117.2 billion) from an upwardly revised deficit of $138.3 billion (from -$140.5 billion) in March. Exports were $8.3 billion more than March exports, but imports were $68.4 billion less than March imports.
There is no question that the tariff actions upended import activity, which made a major dent in the trade deficit and which will make a materially positive contribution to the net exports component of Q2 GDP.
That is good news. Some less good news was in the other data.
Q1 productivity decreased 1.5% (Briefing.com consensus -0.8%) versus the preliminary report of a 0.8% decrease. Unit labor costs, meanwhile, were revised up to 6.6% (Briefing.com consensus 5.7%) from the preliminary reading of 5.7%.
That is a bad combination with stagflation undertones that will complicate the Fed's assessment of the overall economic picture and what to do with its policy rate.
Separately, initial jobless claims for the week ending May 31 increased by 8,000 to 247,000. Continuing jobless claims for the week ending May 24 decreased by 3,000 to 1.904 million; however, the four-week moving average of 1,895,250 is the highest level since November 27, 2021.
These data point to some softening in the labor market but altogether don't ring any loud alarm bells for the economic outlook. Yes, initial jobless claims -- a leading indicator -- have risen, but they remain well below levels associated with a recession. It won't be until the initial claims numbers start to exceed 300,000 on a regular basis that alarms will sound with respect to the labor market and the economy's growth trajectory.
In other developments, the ECB voted to cut its key interest rates by 25 basis points, as expected, and there is growing attention to potential stumbling blocks in passing the House's version of the reconciliation bill in the Senate. Elon Musk is making waves that have rippled across Capitol Hill, urging lawmakers today to "kill the bill."
The Treasury market is taking all this in, too, and is firmer today. The 2-yr note yield is down one basis point to 3.87%, and the 10-yr note yield is down one basis point to 4.35%.
