Sellers were in control on Tuesday; buyers were in control on Wednesday; but nobody seems to be in control this morning. The futures for the major indices are little changed, underscoring a lack of conviction and pointing to the prospect of a flattish open for the cash market.
It is a fitting disposition for a market that has been range-bound for months, alternating between headline cheer and headline depression, rising interest rates and falling interest rates, great earnings results and caustic claims that earnings growth is peaking.
Today, there is a little something for everyone, which could be the reason why the futures market reflects an indecisive bias.
- There are reports that the steel and aluminum tariff exemptions for the EU, Canada, and Mexico are going to be allowed to expire on June 1; and that, consequently, the EU for one may respond with retaliatory tariffs
- There are reports that populist parties in Italy are going to take another stab at trying to form a coalition government
- China reported better than expected manufacturing and non-manufacturing PMI readings for May; meanwhile, it has been reported that China could impose investment restrictions of its own if the U.S. follows through with imposing investment restrictions on Chinese companies
- The eurozone reported higher than expected CPI and core CPI readings for May
- The U.S. reported better than expected spending data for April and lower than expected initial claims for the week ending May 26
- Oil prices, which were down Tuesday and up Wednesday, are down today ($67.51, -$0.71, -1.0%)
- American Eagle Outfitters (AEO) and Express (EXPR) are up after reporting their earnings results; Dollar Tree (DLTR) and Dollar General (DG) are down after reporting their results
The swirl of headlines is creating a wait-and-see trading perspective. That is, traders are waiting to see which way the market turns after the open, cognizant that it has the potential to turn noticeably in either direction for reasons that may be clear or not clear at all.
It was clear in the Personal Income and Spending Report for April, however, that income and spending were up. Specifically, personal income increased 0.3%, as expected, while personal spending rose 0.6% (Briefing.com consensus +0.3%). The personal savings rate dropped to 2.8% from 3.0%.
The PCE Price Index jumped 0.2%, in-line with expectations, while the core PCE Price Index, which excludes food and energy, also increased 0.2% (Briefing.com consensus +0.1%). On a year-over-year basis, the PCE Price Index and core PCE Price Index were up 2.0% and 1.8%, respectively, unchanged from March.
The key takeaway from the report is that real PCE was up 0.4%, leaving it well above the first quarter average growth rate of less than 0.1% and solidifying expectations for stronger GDP growth in the second quarter. Separately, the firming trend in the price indexes should contribute to an internal belief at the Federal Reserve that there is scope for three rate hikes in 2018.
The initial claims report produced more of the same. Claims for the week ending May 26 decreased by 13,0000 to 221,000 (Briefing.com consensus 227,000), marking the 169th straight week they have held below 300,000. Continuing claims for the week ending May 19 decreased by 16,000 to 1.726 million.
The initial claims data will be glossed over by market participants, who will turn a more attentive eye to Friday's release of the Employment Situation Report for May.