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Resolution Of Tariff Standoff May Generate Early Buying Interest

The major U.S. index futures are currently pointing to a higher opening on Monday, with stocks likely to extend the substantial rebound seen over the course of the previous week.

Early buying interest is likely to be generated in reaction to news the U.S. and Mexico have reached an agreement to avert President Donald Trump's threatened tariffs on all Mexican imports.

Trump revealed in a post on Twitter late Friday that the 5 percent tariff he threatened to impose on Mexican imports beginning today has been "indefinitely suspended."

The suspension of the tariff threat comes as the two countries signed a deal Trump claims will help stop the flow of migrants through Mexico and into the U.S.

"I am pleased to inform you that The United States of America has reached a signed agreement with Mexico. The Tariffs scheduled to be implemented by the U.S. on Monday, against Mexico, are hereby indefinitely suspended," Trump tweeted.

He added, "Mexico, in turn, has agreed to take strong measures to stem the tide of Migration through Mexico, and to our Southern Border. This is being done to greatly reduce, or eliminate, Illegal Immigration coming from Mexico and into the United States."

Details of the deal announced by the State Department indicated Mexico will take unprecedented steps to increase enforcement to curb irregular migration, including deploying 6,000 troops from its newly formed National Guard to its southern border.

However, some analysts have questioned the impact of the steps being taken by Mexico, arguing Trump threatened to derail a key economic partnership for a deal that ultimately maintains the status quo.

Trump also warned on Twitter this morning that the tariffs will be reinstated if Mexico's legislative body does not approve an unrevealed but "very important" part of the deal.

Extending the substantial recovery seen over the past few sessions, stocks moved sharply higher during the trading day on Friday. With the rally, the Dow reached its best closing level in a month after ending last Friday's trading at a four-month closing low.

The major averages finished the day off their highs of the session but still firmly in positive territory. The Dow jumped 263.28 points or 1 percent to 25,983.94, the Nasdaq soared 126.55 points or 1.7 percent to 7,742.10 and the S&P 500 surged up 29.85 points or 1.1 percent to 2,873.34.

For the week, the Dow skyrocketed by 4.7 percent to record its best week since November, while the Nasdaq and the S&P 500 spiked by 3.9 percent and 4.4 percent, respectively.

The continued strength on Wall Street reflected optimism disappointing U.S. jobs data could spur the Federal Reserve to lower interest rates in the near future.

The Labor Department's closely watched monthly jobs report released before the start of trading showed a substantial slowdown in the pace of U.S. job growth in the month of May.

The report said non-farm payroll employment rose by 75,000 jobs in May after soaring by a downwardly revised 224,000 jobs in April.

Economists had expected employment to increase by about 185,000 jobs compared to the jump of 263,000 jobs originally reported for the previous month.

Meanwhile, the unemployment rate came in at 3.6 percent in May, unchanged from the previous month and in line with economist estimates.

"The soft 75,000 gain in non-farm payrolls in May wasn't quite as bad as the dismal ADP employment reading earlier this week but, along with the downward revisions to previous months, it is another sign that economic growth is slowing," said Andrew Hunter, Senior U.S. Economist at Capital Economics.

He added, "On balance, we still think Fed officials will want to see evidence of more sustained weakness before taking action, but we are increasingly convinced that the Fed will begin cutting interest rates later this year."

The markets have recently benefited from optimism about a potential interest rate cut after Fed Chairman Jerome Powell pledged to act "as appropriate" to sustain the economic expansion.

Stocks remained firmly positive after President Donald Trump said there is a "good chance" the U.S. and Mexico will reach an agreement to avert his threatened 5 percent tariff on all Mexican imports.

Trump threatened to impose the tariffs unless Mexico acts to stop the flow of migrants passing through the country and into the U.S. but now says a deal could also involve Mexico purchasing more American agricultural products.

Software stocks turned in some of the market's best performances on the day, driving the Dow Jones U.S. Software Index up by 2.1 percent.

Reflecting the substantial rebound by the sector, the software index reached its best closing level in a month after ending Monday's trading at its lowest closing level in well over two months.

Significant strength also emerged among retail stocks, as reflected by the 1.6 percent gain posted by the Dow Jones U.S. Retail Index.

Bookseller Barnes & Noble (BKS) posted a standout gain after agreeing to be acquired by Elliott Advisors in an all-cash transaction valued at approximately $683 million.

Tobacco, biotechnology, and healthcare stocks also saw considerable strength on the day, moving higher along with most of the other major sectors.

Commodity, Currency Markets

Crude oil futures are edging up $0.20 to $54.19 a barrel after jumping $1.40 to $53.99 a barrel last Friday. Meanwhile, after rising $3.40 to $1,346.10 an ounce in the previous session, gold futures are plunging $14.70 to $1,331.40 an ounce.

On the currency front, the U.S. dollar is trading at 108.57 yen compared to the 108.19 yen it fetched at the close of New York trading on Friday. Against the euro, the dollar is valued at $1.1307 compared to last Friday's $1.1334.

Asia

Asian stocks rose on Monday after weak U.S. jobs data fueled interest rate cut hopes and the Trump administration announced it would drop plans for tariffs on Mexico in return for more stringent efforts to control illegal border crossings.

Chinese shares rose to snap a six-session losing streak as mixed trade data boosted stimulus hopes. The benchmark Shanghai Composite Index climbed 24.33 points or 0.9 percent to 2,852.13, while Hong Kong's Hang Seng Index surged up 613.36 points or 2.3 percent to 27,578.64.

China's exports grew 1.1 percent last month after falling 2.7 percent in April, according to customs data. Analysts had expected a 3.8 percent decline. Meanwhile, imports plummeted 8.5 percent after surging up 4.0 percent in April due to softening external conditions.

Japanese markets ended near two-week highs as safe havens such as the Japanese yen retreated on improved risk sentiment. The Nikkei 225 Index rallied 249.71 points or 1.2 percent to 21,134.42, while the broader Topix closed 1.3 percent higher at 1,552.94.

Nissan, which makes the most vehicles in Mexico among Japanese automakers, gained 0.8 percent. Honda Motor advanced 1.5 percent, Toyota Motor added 1.8 percent and Mazda Motor surged 1.1 percent.

However, shares of telecom operators fell on reports the government plans to cap the fee for canceling a two-year cell phone contract at 1,000 yen. NTT Docomo dropped 1 percent and KDDI Corp shed 1.6 percent.

In economic news, Japan's GDP grew a seasonally adjusted 0.6 percent sequentially in the first three months of 2019, the Cabinet Office said. That's an upward revision from 0.5 percent in last month's preliminary reading.

On an annualized basis, GDP was up 2.2 percent - matching forecasts and up from 2.1 percent in the preliminary reading.

Japan had a current account surplus of 1,707.4 billion yen in April, another report showed, down 9.5 percent from last year. The trade balance fell to a 98.2 billion yen deficit versus expectations for a surplus of 5.0 billion yen.

Seoul stocks rallied to extend gains for the third consecutive session, with underlying sentiment underpinned by easing friction between the U.S. and Mexico as well as hopes for Federal Reserve interest rate cuts.

The benchmark Kospi jumped 27.16 points or 1.3 percent to 2,099.49, led by technology companies and automakers.

Hyundai Motor climbed 2.1 percent, while its affiliate Kia Motors jumped 4.5 percent. The automakers operate plants in Mexico for shipment to the North American market.

The Australian markets were closed in observance of the Queen's birthday.

Europe

European stocks have risen on Monday after the Trump administration "indefinitely suspended" tariffs on all Mexican goods and data showed Chinese exports unexpectedly returned to growth in May despite higher U.S. tariffs.

The Mexican peso rallied more than two percent after the Trump administration announced it would drop plans for tariffs on Mexico in return for more stringent efforts to control illegal border crossings.

While the U.K.'s FTSE 100 Index has advanced by 0.6 percent, the French CAC 40 Index has risen by 0.3 percent. Trading volumes remain thin amid holidays in Germany, Switzerland, Austria and most Nordic countries.

Travel company Thomas Cook has jumped after reports that Hong Kong's Fosun Tourism was in talks to buy its tour operating business.

Renault shares have also shown a notable move to the upside. According to the Financial Times, the French car maker, which is in alliance with Nissan, has said it will block the Japanese automaker's plan to overhaul its corporate governance.

On the other hand, Ferguson shares have slumped after the British plumbing and heating products distributor reported a 6.2 percent rise in third-quarter revenue, missing analysts' estimates.

U.S. Economic Reports

The Labor Department is scheduled to release its report on job openings and labor turnover in the month of April at 10 am ET. Job openings are expected to drop to 7.240 million in April after rising to 7.488 million in March.

Stocks In Focus

Raytheon (RTN) and United Technologies (UTX) are seeing notable pre-market strength after announcing an all-stock merger of equals to create a $120 billion defense and aerospace giant.

Shares of LyondellBasell (LYB) are also likely to see initial strength after the chemical company commenced a "modified Dutch Auction" tender offer to purchase up to 37 million shares of its issued and outstanding ordinary stock.

On the other hand, Salesforce (CRM) may come under pressure after announcing an agreement to acquire Tableau Software (DATA) for $15.3 billion in an all-stock transaction.

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