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Dow Futures Swing Higher Amid Confidence Over Pro-US Trade Deal

Last Updated September 23, 2020 1:24 PM
Harsh Chauhan
Last Updated September 23, 2020 1:24 PM
  • Dow Jones futures are up early Wednesday.
  • Clarity on Chinese agricultural product purchases from the U.S. could be a tailwind today.
  • The overall economic scenario seems to be improving and this is good news for the stock market.

Futures on the Dow Jones Industrial Average (DJIA) are up early Wednesday morning, pointing toward a higher opening for the stock market today. The Dow managed to finish Tuesday on a high as peak optimism surrounding the U.S.-China trade deal faded away.

The weakness in the Dow’s largest component – Boeing (NYSE: BA) – after the suspension of the production of the 737 Max aircraft held the stock market back yesterday. Meanwhile, concerns about the longevity of the truce between the U.S. and China posed another headwind.

But the Dow managed to stitch together another day in the green as positive data on the economic front acted as a tailwind. Job openings increased in October after dipping to an 18-month low during September. The Labor Department reported that the number of job openings  in the U.S. increased by 235,000 to 7.3 million.

The U.S. housing market got a shot in the arm as well as starts for the month of November were better than expected. Future home construction permits clocked a 12.5 year high  thanks to low mortgage rates, though concerns around the widening gap between wage growth and home price growth persist.

On the other hand, manufacturing output in the U.S. also recorded a stronger-than-expected bump. All of these indicate that the U.S. economy is getting stronger, and this could drive positive sentiment for the Dow and the broader stock market today.

Dow futures edge up as confidence inches up

Dow Jones futures were up 27 points, or 0.10 percent, at 5.49 am ET. The chart shows that Dow futures have gained momentum early Wednesday morning.

Chart showing Dow Jones futures.
Dow Jones futures point toward a green day for the stock market. | Source: Yahoo! Finance

S&P 500 futures and Nasdaq Composite futures are also in the green this morning. All of this bodes well for the stock market today as some more favorable details have emerged with respect to the U.S.-China trade deal.

This could be the stock market’s new catalyst today

Experts have been complaining about the lack of details surrounding the trade deal. But a key detail has emerged now and that could positively impact the Dow today. Trade representative Robert Lighthizer says that China has agreed to purchase $80 billion worth of agricultural products  from the U.S. over the next couple of years.

This is much higher than the $50 billion worth of American farm products that Beijing was originally expected to buy . This sends a signal that the U.S. has succeeded in negotiating a much favorable deal than what was originally anticipated, thereby creating a tailwind for the stock market.

What’s more, the reduction in trade tensions between the U.S. and China seems to be rubbing off positively on the global economic stage. JPMorgan Asset Management has reduced its probability of a global recession  from 40 percent to 25 percent thanks to the trade deal, as well as monetary easing across the globe.

The investment banking firm now recommends investors to take risks and shun their defensive modes. JPMorgan believes that securities in emerging markets such as Mexico, Russia, Peru, and Indonesia could prove to be attractive options for investors in light of the ease in trade tensions. Analysts across the board predict that global growth could pick up the pace in 2020, and this could fuel another day of gains for the stock market and the Dow today.

Meanwhile, a bunch of earnings reports will be released today that could impact the stock market’s performance. They include Micron Technology, General Mills, Paychex, Toro, Herman Miller, and ABM Industries.