Stock Market Update

The stock market, on the other side of yesterday's broad-based losses, is indicated to open in a mixed fashion today. The S&P 500 futures are 0.1% above fair value, the Nasdaq 100 futures are 0.3% above fair value, and the Dow Jones Industrial Average futures are in line with fair value.

Much of the attention this morning has been on the tariff letters sent to several countries, most notably Japan and South Korea, informing them that they will face higher tariff rates starting August 1 if they cannot work out better trade terms for the U.S. before then. At the same time, there is a sense of reprieve, given that (a) the deadline for reaching a deal has been extended to August 1, which itself may not be a firm deadline (b) Japan's 25% tariff rate is less than the rate of up to 35% threatened last week and (c) neither the EU nor India received tariff letters, reportedly because trade deals are close.

Treasury yields continue to float higher in an ongoing steepening trade driven by weakness at the back end. The 10-yr note yield is up three basis points to 4.42%, and the 30-yr bond yield is up four basis points to 4.96%. The Treasury market doesn't have much economic data of note to chew on today. The NFIB Small Business Optimism Index held fairly steady in June at 98.6 (prior 98.8). The market will be taking down some new supply with a $58 billion 3-yr note auction. Results will be released at 1:00 p.m. ET.

Separately, the RBA surprised the market with a decision to leave its cash rate unchanged at 3.85%. Market participants had been expecting a 25 basis-point rate cut, yet officials, in a 6-3 vote, based the decision on a desire to wait and see more data.

The U.S. Dollar Index is flat at 97.48.

In corporate news:

• Amazon.com (AMZN 224.27, +0.80, +0.4%): Start of Prime Day(s) today; expected to generate $12.9 bln in revenue, according to The Wall Street Journal
• Apple (AAPL 210.06, +0.11, +0.1%): lost a top artificial intelligence executive to Meta Platforms (META 722.41, +4.06, +0.6%), according to Bloomberg
• Bank of America (BAC 47.69, -0.97, -2.0%): HSBC downgrades to Hold from Buy
• ExxonMobil (XOM 110.80, -0.31, -0.3%): provided guidance on items that it expects to impact its Q2 results
• Honeywell (HON 240.00, +0.65, +0.3%): to evaluate strategic alternatives for productivity solutions and services and warehouse and workflow solutions businesses

Reviewing overnight developments:

• Equity indices in the Asia-Pacific region were mostly higher Tuesday, bolstered by some hope that the U.S. has allowed more time to negotiate trade deals. Japan's Nikkei +0.4%, Hong Kong's Hang Seng +1.1%, China's Shanghai Composite +0.7%, India's Sensex +0.3%, South Korea's Kospi +1.8%, and Australia's All Ordinaries flat.
  • In economic data:
    • Japan's May Current Account JPY3.436 trln (expected JPY2.940 trln; last JPY2.258 trln); June Economy Watchers Current Index 45.0 (expected 45.1; last 44.4)
    • Australia's June NAB Business Confidence 5 (last 2)
  • In news:
    • Several countries received tariff letters informing them of higher tariff rates starting August 1. Japan and South Korea will face a 25% tariff rate. That was seen as a win of sorts for Japan after President Trump said last week Japan could face tariffs up to 35%.
    • Indonesia (32%), Bangladesh (35%), Thailand (36%), Cambodia (36%), Laos (40%), and Malaysia (25%) also got letters. Reportedly, the lines are open and are being utilized to win a reprieve from the higher tariff rates.
    • India was not a letter recipient, as President Trump suggested it is close to a deal with the U.S.
    • According to Reuters, China said it would take issue with the U.S. restoring higher tariffs on its goods and countries that strike deals with the U.S. that skirt the need for China's supply lines.
    • The RBA left its cash rate unchanged at 3.85% in a 6-3 vote, surprising a market that expected a 25 basis point cut. The decision was predicated on a desire to wait for more data, yet the RBA remains inclined to cut rates further.
    • Samsung Electronics underperformed after reporting a preliminary Q2 profit that was below expectations.
• Major bourses in Europe are mixed with modest changes on either side of the unchanged line. Germany's DAX +0.4%, UK's FTSE 100 +0.2%, France's CAC 40 -0.1%, Italy's FTSE MIB +0.5%, and Spain's IBEX 35 +0.4%.
  • In economic data:
    • Germany's May Trade Balance EUR18.4 bln (expected EUR15.7 bln; last EUR 15.8 bln), with exports -1.4% (expected -0.2%; last -1.6%) and imports -3.8% (expected -0.9%; last -2.2%)
    • France's May Trade Balance EUR-7.8 bln (expected EUR-7.7 bln; last EUR-7.6 bln)
  • In news:
    • Reuters reports that the EU may be close to a deal that would maintain the baseline tariff rate at 10% but include some exceptions below that rate for aircraft and parts, medical equipment, and spirits.
    • Germany's exports disappointed in May, with demand weakening, particularly from the U.S., after the tariff frontrunning in March and April.