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Market bulls stepping on the welcome mat
The stock market has put out the welcome sign to participants returning from the Labor Day weekend. Currently, the S&P 500 futures are up 25 points and are trading 0.6% above fair value, the Nasdaq 100 futures are up 70 points and are trading 0.5% above fair value, and the Dow Jones Industrial Average futures are up 192 points and are trading 0.6% above fair value.
The warm welcome isn't related so much to the news cycle since Friday's close as it is related to the chill the stock market has experienced in recent weeks.
Since the August 16 highs, the Dow, Nasdaq, and S&P 500 are down 8.6%, 11.8%, and 9.3%, respectively. The futures market is leaning positively this morning primarily because of an expectation that it is due for a bounce from a short-term oversold condition.
There is negative news in the mix, too.
Russia has indicated that the shutdown of the Nord Stream 1 pipeline will be long lasting, according to The Wall Street Journal; OPEC+ announced a 100K barrel per day cut in production; the USTR confirmed that China trade tariffs will remain in place; China has extended the lockdown of Chengdu, and Guiyang, the capital of Guizhou province, is now in a Covid-related lockdown; and the Reserve Bank of Australia has raised its cash rate by 50 basis points to 2.35%, as expected.
For good measure, the Japanese yen continues to crumble against the dollar. USD/JPY is up 1.2% to 142.23, which is a new 24-year low.
The Chinese yuan, meanwhile, sits at a 2-year low against the dollar after the PBOC fixed the midpoint at 6.9096. On a related note, the PBOC also announced that it is cutting the foreign exchange required reserve ratio for financial institutions by 200 basis points to 6.00%, effective September 15, in a move designed to support for the yuan.
The euro is at a 20-year low against the dollar, with the EUR/USD cross sitting at 0.9917.
The strong dollar is a drag on the earnings prospects for U.S. multinational companies, but that understanding isn't a drag on sentiment this morning.
There is a positive bias even though market rates have moved higher. The 2-yr note yield is up eight basis points to 3.48% and the 10-yr note yield is up five basis points to 3.25%. That price action could become a drag as today's session carries, particularly if it worsens, but it isn't for now.
For now, there is a rebound-minded bias in the stock market being aided by the positive price action in the mega-cap stocks, some M&A activity that includes CVS Health (CVS) buying Signify Health (SGFY) for about $8.0 billion, or $30.50 per share, in cash, and a bit of a speculative push to reverse the market's losing ways of late.