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Briefing.com Summary:
*Rate cut expectations continue to swell after comments from Fed's Daly
*Caterpillar loses ground after reporting earnings
*June Trade Balance Report shows the effects of U.S. tariff actions and the uncertainty surrounding them.
The stock market got off to a very good start this week, recouping most of what was lost in Friday's sell-off following the July employment report. It doesn't appear ready to go back to last week either.
Currently, the S&P 500 futures are up six points and are trading 0.1% above fair value, the Nasdaq 100 futures are up 61 points and are trading 0.2% above fair value, and the Dow Jones Industrial Average futures are down 23 points and are trading fractionally above fair value.
These indications have the major indices on course for a flat to modestly higher open, with support coming in again from the mega-cap stocks and expectations of lower interest rates in the months ahead.
San Francisco Fed President Daly (non-FOMC voter) helped massage the latter view with an observation that the time for a rate cut may be near and that perhaps more than two rate cuts may be needed before the end of the year.
The fed funds futures market is pricing in two rate cuts before the end of the year (in September and October), but a third cut is turning into a coin toss, per the CME FedWatch tool.
Treasury yields are little changed this morning. That doesn't mean the market is dismissive of Ms. Daly's view. On the contrary, the Treasury market, which will digest a $58 billion 3-yr note auction today, quickly angled to get out in front of it after the weak payrolls data on Friday. The 2-yr note yield is up two basis points to 3.70%, and the 10-yr note yield is up one basis point to 4.21%.
The stock market, for its part, is digesting another load of earnings results. Dow component Caterpillar (CAT) is trading 1.3% lower after its results, while Eaton Corp. (ETN) is down 5.2% following some disappointing Q3 guidance. Pfizer (PFE), Palantir Technologies (PLTR), Sealed Air (SEE), and Duke Energy (DUK), on the other hand, are among the notable companies trading higher after their earnings results.
We won't call it a "wash" in terms of the earnings reactions, as there are more positive reactions than negative reactions. Still, investors aren't getting overly excited by the earnings results relative to what many of the mega-cap stocks managed to deliver.
The market hasn't gotten too worked up either by the June Trade Balance Report, which showed a continued narrowing in the trade deficit.
Specifically, the trade deficit narrowed to $60.2 billion in June (Briefing.com consensus: -$62.0 billion) from a downwardly revised $71.7 billion (from -$71.5 billion) in May. That improvement stemmed from imports being $12.8 billion less than May imports, while exports were $1.3 billion less than May exports.
The key takeaway from the report is that it reflects the fact that tariff actions by the U.S. and the uncertainty related to the tariffs have impeded global trade activity.
