Stock Market Update

The S&P 500 futures are up 163 points and are trading 3.0% above fair value, the Nasdaq 100 futures are up 774 points and are trading 3.9% above fair value, and the Dow Jones Industrial Average futures are up 999 points and are trading 2.4% above fair value.

Major equity indices are poised for a sharply higher open after a big development in the trade war with China. The U.S. agreed to cut tariffs on China to 30% from 145% for 90 days (20% fentanyl tariffs plus 10% reciprocal tariffs) and China agreed to cut its retaliatory tariffs on the U.S. to 10% from 125% for 90 days as trade talks continue. 

Also, President Trump will sign an executive order today at 9:00 ET that will require the government to adopt a “most favored nation” pricing model for prescription drugs so the "U.S. will pay the same price as the nation that pays the lowest price anywhere in the world."

Early trading features a risk-on bias and large-cap tech stocks lead the premarket action. 

Treasuries exhibited an uptick in selling. The 10-yr yield is up six basis points to 4.44% and the 2-yr yield is up ten basis points to 3.98%.

In corporate news:

• Microsoft (MSFT 448.90, +10.17, +2.3%): OpenAI in discussions with Microsoft (MSFT) to unlock new funding, according to FT
• Apple (AAPL 210.25, +11.72, +5.9%): mulling increasing iPhone prices without blaming price increase on tariffs, according to WSJ
• Johnson Controls (JCI 94.50, +2.58, +2.8%): upgraded to Buy from Hold at Deutsche Bank, tgt $112
• BP (BP 30.44, +0.67, +2.3%): downgraded to Underweight from Equal Weight at Morgan Stanley, tgt $26.50
• Target (TGT 101.71, +5.31, +5.5%): downgraded to Underperform from Market Perform at Bernstein, tgt $82

Reviewing overnight developments:

• Equity indices in the Asia-Pacific region started the week on a strong note. Japan's Nikkei: +0.4%, Hong Kong's Hang Seng: +3.0%, China's Shanghai Composite: +0.8%, India's Sensex: +3.7%, South Korea's Kospi: +1.2%, Australia's ASX All Ordinaries: +0.1%.
  • In economic data:
    • China's April CPI 0.1% m/m (last -0.4%); -0.1% yr/yr, as expected (last -0.1%). April PPI -2.7% yr/yr, as expected (last -2.5%)
    • Japan's April Economy Watcher Current Index 42.6 (expected 44.7; last 45.1). March Current Account surplus JPY2.72 trln (expected JPY2.42 trln; last JPY2.91 trln). April Bank Lending 2.4% yr/yr (expected 2.8%; last 2.8%)
  • In news:
    • Markets in India (+3.7%) and Hong Kong (+3.0%) showed relative strength after the weekend meeting between representatives from the U.S. and China produced an agreement to reduce tariffs on both sides by 115 basis points for 90 days.
    • Consumption in China remained weak in April, resulting in another deflationary yr/yr CPI reading (-0.1%).
    • South Korea's exports through the first ten days of May were down 23.8% yr/yr, but chip exports grew 14.0%.
    • India and Pakistan agreed to a ceasefire after a recent escalation of tension along the Kashmir line.
• Major European indices are starting the week on a higher note. STOXX Europe 600: +0.9%, Germany's DAX: +0.8%, U.K.'s FTSE 100: +0.5%, France's CAC 40: +1.3%, Italy's FTSE MIB: +1.8%, Spain's IBEX 35: +0.4%.
  • No data today
  • In news:
    • Markets are encouraged by news of a 90-day tariff reduction on shipments between China and the U.S., which is fueling hope for a broader deal in the future.
    • This positive sentiment overshadowed geopolitical discussions, such as U.K.-hosted talks on Ukraine, and broadly lifted European indices, with trade-sensitive sectors performing well.
    • Bank of England policymaker Lombardelli said that it is sensible to continue cutting rates at a gradual pace while European Central Bank policymaker Schnabel said that keeping rates near current levels ensures policy that is neither holding back growth nor stimulating it.