Market Alert - Pre-Market

Futures vs FV: SP -3.26; DJ -66.88; NASDAQ +1.13

Futures were in decent shape, modestly higher across the board in a continuation of the WED rebound. At 8:50am, just before the Administration's conference call on the possible removal of the EU, Canada, and Mexico steel and aluminum tariff exemptions, stocks started down sharply. Trade is still an issue, and it is still an issue for the markets.

Why hitting our allies? Because they are using NAFTA to circumvent the normal trade rules. NAFTA is to be between the US, Canada and Mexico. Other countries, however, play the system by building HUGE plants in Mexico (Mercedes, BMW, Japanese automakers) and then use the NAFTA preferred trade levels to avoid any other costs of exporting to the US. That is one of the reasons Trump said on the campaign trail that NAFTA was poorly drafted -- the Clinton administration either didn't see the potential problems that came to be, or they saw them and didn't care or had a reason to let them by. Now it is the process of removing bad deals, and those who have it good just go apoplectic over it. Thus you see China, the EU and others screaming, but it is because they won't get the cushy deals they had. Those here in the US protecting their interests with those countries scream as well. Thus the ongoing issues.

Anyway, the futures drop likely has something to do with the reality of that conference call.


Personal Income, April: 0.3% vs 0.3% exp vs 0.2% March (from 0.3%)

Spending: 0.6% vs 0.3% expected vs 0.5% March (from 0.4%)

Sounds great re spending, but here is the rub: the bulk of the gains were due to expenditures on gasoline, utilities. The prices of those products increased dramatically in April. Thus, it is NOT a case of the consumer spending more discretionary income on things it wants, but FORCED spending of discretionary income on fuels to that are burned to get to work, etc. Thus it is more like INFLATION or a TAX to have to spend more of your take home pay on these items.


Earnings beats: PVH; BOX; JILL; Express

Misses: DG (TB); SHLD (BL); GES (TL)


MU: leading chip stock downgraded on valuation as it approaches a firm's price target.


OTHER MARKETS
Bonds: 2.842% vs 2.857%. Bonds were off but have rallied back as the stock market faded.

EUR/USD: 1.165 VS 1.1663

USD/JPY: 108.68 vs 108.85

Oil: 66.96, -1.25

Gold: 1305.60, -0.90


Futures dropped just before the top of the hour, have stabilized a bit, but are showing no inclination to rebound. It looks as if the excesses of WED are going to be paid for, a bit, at the open. Hey, a softer open after a good move higher or during a trend higher can be a good thing to get the bids going again. Of course, this market needs it: nascent breakouts (outside RUTX which showed a big one) need to keep going.

Jon Johnson, Chief Market Strategist
InvestmentHouse.com
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