Tuesday June 12th

12-06-2018

US stock futures flat after Trump-Kim summit ends

U.S. stock index futures held steady ahead of Tuesday's open after President Donald Trump and North Korea leader Kim Jong Un signed a historic agreement aimed at establishing a "peace regime" on the Korean peninsula and better relations between the two states. Lack of detail in the agreement, which included denuclearization on the peninsula, appeared to disappoint Wall Street. Stocks remain higher on a weekly basis, however, with the S&P 500 up nearly 1.3 percent and the Dow Jones industrial average up 2 percent. Around 8:34 a.m. ET, Dow futures were unchanged, indicating a positive open of 14 points. The Nasdaq and the S&P 500 futures also indicated unchanged opens for their respective markets. At the end of their meeting, the first ever between sitting leaders of the two nations, Trump and Kim signed a document enumerating goals for the two states. "I don't think there's any surprises here, which is why the markets aren't reacting that much ... Trump wouldn't be going there unless he was going to sign something, unless there was some positive pronouncement," said Paul Tudor Jones, the famed and reclusive hedge fund manager who called the October 1987 market crash. "We've been trading it the past 12 months leading up to this point so this is semi-anticlimactic." The document, which Trump deemed "very comprehensive," says the two sides commit to hold follow-up negotiations and to cooperate to develop bilateral relations. Asked for specifics on what the agreement meant for North Korea's nuclear program, Trump said. "We're starting that process very quickly — very, very quickly." The president added that sanctions will remain on Pyongyang remain in place until "the menace of nuclear weapons" is gone. Stocks of companies in South Korea's Kospi edged down less than 0.1 percent following the agreement, while Japan's Nikkei 225 rose 0.3 percent. Hong Kong's Hang Seng Index added 0.42 percent by 3:02 p.m. HK/SIN, with the energy and service sectors leading gains. On the mainland, the benchmark Shanghai composite gained 0.91 percent to finish at 3,080.55 and the smaller Shenzhen composite rose by more than 1 percent. Despite the muted moves in stocks Tuesday, Jones said he believes the U.S. stock market will rally near the end of this year. "I think we'll see rates move significantly higher beginning some time late third quarter, early fourth quarter," Jones added. "And I think the stock market also has the ability to go a lot higher at the end of the year." Gold fell 0.3 percent to $1,299 an ounce and the dollar rose 0.2 percent against the Japanese yen. Investors are also looking ahead to a meeting of the U.S. Federal Reserve, due to take place on Tuesday and Wednesday. Fed Chair Jerome Powell and his colleagues are expected to announce a quarter-point increase in interest rates as the central bank seeks to normalize monetary policy with the economy showing signs of health. Earlier this month, data revealed that the U.S. economy added 223,000 jobs in May, well ahead of economist expectations of 188,000 and adding to a growing pool of evidence that the economy is nearing full employment. A measure that tracks consumer prices shows the cost of living is increasing at the fastest pace in six years, reflecting a strong U.S. economy and ultra-tight labor market that’s stoking inflation. The consumer price index increased 0.2% in May, the government said Tuesday, in line with Wall Street’s forecast. The report came out one day before a Federal Reserve meeting in Washington that’s expected to result in another increase in U.S. interest rates. A more closely followed measure that strips out food and energy also rose 0.2% last month. It’s known as the core rate of inflation. "What the market wants to know regarding the Fed is whether they want to see a fourth rate hike, do they even see it as a possibility," Krosby added. "There are those who suggest the economy will gain momentum, but there are those who think the economy is not strong enough." While U.S. markets have remained comparatively calm over the past two weeks, stricter monetary policy from the Fed, as well as more hawkish commentary from the ECB, appeared to stress certain debt-heavy economies like those of Italy and Brazil. Concerns about global credit contagion weighed on financial stocks two weeks ago after a populist rift in Italy threatened to prevent the country from forming a government. The latest developments spurred dormant fears concerning the stability of the euro zone and default risk concerning Italy's €2.3 trillion ($2.68 trillion) in debt. "The point is every time we have rate hikes, emerging markets come under pressure," Krosby said. "It reminds me of an old trading floor adage: When rates rise, something always breaks." Oil prices rose for a second day on Tuesday and volatility subsided to its lowest in three weeks, as investors prepared for a key meeting of the OPEC producer group next week. Crude remained in a tight trading range, in line with the broader financial markets, which were largely unruffled by a U.S.-North Korea summit aimed at denuclearisation of the Korean peninsula. Brent crude futures were up 17 cents at $76.63 a barrel by 0855 GMT, while U.S. West Texas Intermediate crude futures rose 11 cents to $66.21.