Dow Jones futures climb as market sentiment improves due to US-EU trade deal
- Dow Jones futures gains ground as the US-EU trade agreement boosts trade optimism.
- The US and China are expected to extend their tariff truce by another 90 days.
- Traders expect the Fed to keep the benchmark interest rate steady between 4.25% and 4.50% on Wednesday.
Dow Jones futures rise ahead of the US market opening on Monday, trading around 45,160, up by 0.18%, during European hours. Meanwhile, S&P 500 Futures are up by 0.31% to 6,445, and Nasdaq 100 Futures appreciate 0.50% to trade near 23,530.
US stock index futures gain ground as market sentiment improves following the trade agreement between the United States (US) and the European Union (EU). Additionally, US Treasury Secretary Scott Bessent and Chinese Vice Premier He Lifeng are scheduled to meet on Monday in Stockholm.
The US and EU reached a framework trade agreement on Sunday that sets 15% tariffs on most European goods, against the 30% initially expected, taking effect on August 1. This deal has ended a months-long stand-off, per Bloomberg. European Commission President Ursula von der Leyen noted that the bloc agreed not to impose retaliatory tariffs and pledged $600 billion in investment in the US on top of existing expenditures.
The US and China are expected to extend their tariff truce by another 90 days, according to a source cited by the South China Morning Post (SCMP) on Sunday. The US has reportedly frozen export controls on key technologies to China in an effort to maintain smoother trade relations, according to a source cited by the Financial Times.
Markets are also gearing up for a busy week of corporate earnings, with more than 100 S&P 500 companies scheduled to report, including tech giants Meta Platforms, Microsoft, Amazon, and Apple. Moreover, the S Federal Reserve (Fed) policy decision will be eyed on Wednesday, with expectations to keep the benchmark interest rate steady between 4.25% and 4.50% in July.
Additionally, traders will also likely observe the upcoming Personal Consumption Expenditures (PCE), the Fed’s preferred inflation measure, for the second quarter, to gauge tariffs' impact on consumer prices. Moreover, the FOMC press conference will be observed for any signs that rate cuts may start in September. Markets have priced in 62% odds of a rate cut in September, according to the CME Group's FedWatch tool.
Dow Jones FAQs
The Dow Jones Industrial Average, one of the oldest stock market indices in the world, is compiled of the 30 most traded stocks in the US. The index is price-weighted rather than weighted by capitalization. It is calculated by summing the prices of the constituent stocks and dividing them by a factor, currently 0.152. The index was founded by Charles Dow, who also founded the Wall Street Journal. In later years it has been criticized for not being broadly representative enough because it only tracks 30 conglomerates, unlike broader indices such as the S&P 500.
Many different factors drive the Dow Jones Industrial Average (DJIA). The aggregate performance of the component companies revealed in quarterly company earnings reports is the main one. US and global macroeconomic data also contributes as it impacts on investor sentiment. The level of interest rates, set by the Federal Reserve (Fed), also influences the DJIA as it affects the cost of credit, on which many corporations are heavily reliant. Therefore, inflation can be a major driver as well as other metrics which impact the Fed decisions.
Dow Theory is a method for identifying the primary trend of the stock market developed by Charles Dow. A key step is to compare the direction of the Dow Jones Industrial Average (DJIA) and the Dow Jones Transportation Average (DJTA) and only follow trends where both are moving in the same direction. Volume is a confirmatory criteria. The theory uses elements of peak and trough analysis. Dow’s theory posits three trend phases: accumulation, when smart money starts buying or selling; public participation, when the wider public joins in; and distribution, when the smart money exits.
There are a number of ways to trade the DJIA. One is to use ETFs which allow investors to trade the DJIA as a single security, rather than having to buy shares in all 30 constituent companies. A leading example is the SPDR Dow Jones Industrial Average ETF (DIA). DJIA futures contracts enable traders to speculate on the future value of the index and Options provide the right, but not the obligation, to buy or sell the index at a predetermined price in the future. Mutual funds enable investors to buy a share of a diversified portfolio of DJIA stocks thus providing exposure to the overall index.
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