Anticipation. Yesterday, stocks oozed upward in a late session comeback on reports of positive progress in US – China trade talks. No real economic or company news combined with more positive, but still sketchy, trade talk was enough for equity markets to fall back to their default positive outlook.
WHAT YOU NEED TO KNOW:
1) A US – Chinese trade deal is 90% done. This according to a Financial Times report yesterday. WHILE YOU SLEPT people familiar with the trade negotiations related that the deal would include China committing to increased commodity purchases by 2025 and allow wholly owned US enterprises in China. The deal is not expected to include agreements related to intellectual property, one of the key drivers of the initial fallout. President Trump will meet with Vice Premier Liu He today in a sign that talks remain constructive.
2) Brexit… not done yet. In a somewhat positive sign, the House of Commons voted ‘no’ to a no-deal Brexit. That means that Brexit hardliners will lose the threat of a hard Brexit in their parliamentary negotiations increasing the likelihood that a more benign solution will be forged. British Pound Sterling rose on the news.
3) Two different reads on the US services economy show it growing, but perhaps slowing. Yesterday, we received services PMI’s from Markit and ISM. Markit posted its final revision for March PMI which showed a decline from 56 to 55.3. ISM, a more closely watched outlet delivered an index reading of 56.1 down from last month’s 59.7. Services make up some 75% of the US GDP.
With no bad news to contend with, equity markets are content to continue to melt upwards toward their highs from 2018. With yesterday’s close at 2863, the S&P 500 is just 1.96% below its all time high close, achieved on Sept. 20th of last year. The index rose an impressive +13.07% in the first quarter… considering it lost -13.97% in the final quarter of 2018. The message here remains: “don’t fight the Fed”. As long as the Fed remains patient, equities traders will continue to cast a positive view on the markets. Yesterday, even weak economic numbers couldn’t cause traders to abandon their positive bias. Stocks opened higher, retreated but ultimately rallied into the close with the S&P500 adding +0.21%, the Dow Jones Industrial Average climbing by +0.15%, the Russell 2000 trading up by +0.49%, and the NASDAQ 100 ascending by +0.6%. Crude held on to recent gains, trading off slightly, but still above $62. Bonds traded off slightly with ten year treasuries closing out the session at 2.52%, an increase of +5 basis points. The move steepened the 3 month / 10 year yield curve by roughly the same amount to around +9 basis, which is positive.
WHAT TO LOOK FOR TODAY:
This morning we will get the weekly Jobless Claims from the Department of Labor, and economists expect 215k new claims for the week, compared to last week’s 211k. Fed Governors Harker and Mester are slated to speak. JP Morgan’s Jamie Dimon will also speak, which is always interesting but not necessarily market moving. The big news of the day will be the President’s meeting with the Chinese Vice Premier. Discussion around Tesla’s missed delivery goal should raise questions about the automakers health. Though immaterial to the market, the political battle between congressional Democrats and the President are heating up and will get some coverage today as well.