There is a negative bias in the futures market this morning. It's nothing major, yet it is presaging a negative start for the cash market.
Currently, the S&P futures are down eight points and are trading 0.3% below fair value. The Nasdaq 100 futures are down 49 points, which leaves them 0.9% below fair value, and the Dow Jones Industrial Average futures are down 87 points, which leaves them 0.3% below fair value.
We need to begin with a general explanation of why there is a negative bias before turning to a specific explanation why opening losses for the Nasdaq 100 are going to be more significant than opening losses for the Dow and S&P 500.
The general explanation is wrapped up in a theme of de-risking.
Market participants are dialing back their buying interest, cognizant that several volatility events might be lurking out there:
- The G7 Summit begins today in Quebec and some early tweets put out by President Trump and French President Macron make it clear that trade issues are going to be a contentious point of discussion
- The coming week features the CPI report for May, the June 12 Summit with North Korea, and central bank meetings for the Federal Reserve, ECB, and Bank of Japan
- The yield on Italy's 10-yr BTP has spiked 36 basis points this week to 3.05%, underscoring a renewal of concerns about the ruling coalition's governing agenda there; and
- There is some nervousness surrounding emerging markets as several countries have raised rates in an effort to stem capital flight
These are all "high-level" issues that could drive some outsized moves. They aren't scaring the market, however. They are simply reining it in a bit.
If they were truly scaring the market, the S&P futures would be down a lot more than eight points.
Now, with respect to the tilt of the Nasdaq 100 futures, it pertains largely to the expected weakness in Apple (AAPL), which is trading 1.3% lower in pre-market action.
That weakness stems from a Nikkei Asian Review article, which cites industry sources as saying Apple is telling its supply chain to prepare around 20% fewer components for iPhones that will debut in the second half of the year.
That is the specific explanation for the underperformance of the Nasdaq 100 futures, but since Apple is the market's largest company by market capitalization, its weakness bleeds into the broader market in a general sense and can be cited as another factor pressuring the futures for the S&P 500 and Dow Jones Industrial Average.
In other developments, Broadcom (AVGO) is down 1.6% despite topping fiscal third quarter earnings estimates and Verizon (VZ) is down 1.1% after the company announced CTO Hans Vestberg will succeed Lowell McAdam as CEO, effective August 1. McAdam is retiring at the end of the year.
Another headline of note involves press reports indicating the Department of Justice isn't going to defend the Affordable Care Act against legal challenges.
There will be some challenges at the start of trading that the market will have to defend itself against, yet it appears buyers are standing down for now and taking a wait-and-see approach.