Stocks extend rally on news that Mexico tariffs may be delayed
06-Jun-19 16:25 ET
Dow +181.09 at 25720.66, Nasdaq +40.08 at 7615.53, S&P +17.34 at 2843.49
briefing.com
[BRIEFING.COM] The stock market extended its rally to a third consecutive day on Thursday, boosted by news that the U.S. may delay the proposed 5% tariff rate on all imports from Mexico. The 0.6% gain in the S&P 500 lifted the benchmark index nearly 100 points above last Friday's closing price (2752) when President Trump announced those tariffs on Mexico.
The Dow Jones Industrial Average increased 0.7%, and the Nasdaq Composite increased 0.5%. The Russell 2000 (-0.2%), however, lost ground for the second straight session.
According to sources from Bloomberg News, Mexico asked for more time to reach a deal needed to avert the tariffs that are planned to go into effect on Monday. Although the report noted the tariffs may still go into effect, one official said Mexico's seriousness in talks may prove the tariffs to be short-lived. Negotiations will continue at 5:30 p.m. ET, according to CNBC.
The market took the initial report in stride, as it pushed to session highs on the back of gains across all 11 S&P 500 sectors.
A turnaround in oil prices ($52.64, +$0.98, +1.9%) padded the rebound in the energy sector (+1.7%), semiconductor stocks boosted the information technology sector (+1.1%), and the trade-sensitive materials sector (+1.1%) also outperformed. The Philadelphia Semiconductor Index advanced 1.3%.
Amid the trade headlines, the prevailing view that the Fed may cut rates at least once this year continued to support risk sentiment. Friday's release of the Employment Situation Report for May could uphold this view if jobs grow less than expected while strong jobs growth could placate economic growth concerns. A sharp increase in average hourly earnings, though, may lessen rate-cut expectations.
On a related note, the European Central Bank left its key rates unchanged as was expected, and it expects those rates to remain at their current levels at least through the first half of 2020. The euro advanced 0.5% against the dollar to 1.1272. The U.S. Dollar Index declined 0.3% to 97.06.
Shorter-dated U.S. Treasuries backtracked from yesterday's advance, pushing the 2-yr yield up five basis points to 1.89%. The 10-yr yield finished unchanged at 2.12% for the second straight day.
In corporate news, shares of Advanced Micro Devices (AMD 31.82, +2.32) surged 7.9% after the stock was upgraded to Equal-Weight from Underweight at Morgan Stanley. Fiat Chrysler (FCAU 13.30, +0.11, +0.8%) withdrew its merger proposal to Renault (RNSDF) due to unfavorable political conditions in France.
Reviewing Thursday's economic data, which included the weekly Initial and Continuing Claims report, revised first quarter readings for Productivity and Unit Labor Costs, and the Trade Balance Report for April:
- Initial claims for the week ending June 1 hit 218,000 (Briefing.com consensus 220,000), representing no change from the prior week's revised level (from 215,000). Continuing claims for the week ending May 25 increased by 20,000 to 1.682 mln.
- The key takeaway from the report is that claims continue reflecting a tight labor market.
- Nonfarm business sector productivity increased 3.4% in the first quarter (Briefing.com consensus 3.4%), according to the revised reading. The initial reading estimated that productivity increased 3.6% in Q1. Unit labor costs decreased 1.6% in the first quarter (Briefing.com consensus -0.8%), down from the initial estimate of a decrease of 0.9%.
- The key takeaway from the report is that the decrease in unit labor costs indicates muted inflationary pressures.
- The trade deficit narrowed to $50.8 bln in April from a revised deficit of $51.9 bln (from $50.0 bln) in March. Exports of $206.8 bln were $4.4 bln below the March level while imports of $208.7 bln were $5.4 bln below the March total.
- The key takeaway from the report is that even with the modest April decrease, the monthly deficit level has not changed much over the past year.
Looking ahead, investors will receive the Employment Situation Report for May, Wholesale Inventories for April, and the Consumer Credit report for April on Friday.
- Nasdaq Composite +14.8% YTD
- S&P 500 +13.4% YTD
- Russell 2000 +11.5% YTD
- Dow Jones Industrial Average +10.3% YTD
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