Stocks Push Higher as T-Note Yields Fall

What you need to know…

The S&P 500 Index ($SPX) (SPY) this morning is up +0.53%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.54%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.50%. 

Stocks this morning are moderately higher.  A decline in T-note yields this morning is giving equities a boost, with the 10-year T-note yield down -5.2 bp at 3.298%.  Also, a rally in utility and renewable energy stocks today is supporting the overall market. Finally, comments today from Cleveland Fed President Mester were bullish for stocks when she said she doesn't have a recession in her baseline outlook.

Stocks are being undercut by concerns about global growth after today’s China trade news showed China Aug exports and imports were weaker than expected.  Another negative factor for the overall market is weakness in energy stocks, with the price of WTI crude today falling more than -4% to a 7-1/4 month low.  In addition, transport stocks are under pressure after Citigroup said it is concerned about the pace of freight activity heading into year-end.

Today’s U.S. economic news was bearish for stocks. The July trade deficit of -$70.7 billion was wider than expectations of -$70.2 billion, which had negative implications for Q3 GDP.

Cleveland Fed President Mester said she doesn't have a recession in her baseline outlook and reiterated that she supports raising the fed funds rate above 4% by early 2023 and leaving it there for some time to combat inflation.

Richmond Fed President Barkin said the Fed must raise interest rates to a level that restrains economic activity and keep them there until policymakers are "convinced" that inflation is subsiding.

Goldman Sachs said the rally in stocks that began in mid-June was a "bear market rally," and they expect "further weakness and bumpy markets before a decisive trough is established."

Today’s stock movers…

Strength in utility stocks is supportive of the overall market.   Exelon (EXC) is up more than +3% to lead gainers in the Nasdaq 100.  Public Service Enterprise Group (PEG) is up more than +3%.  Consolidated Edison (ED), Xcel Energy (XEL), American Electric Power Co (AEP), CMS Energy (CMS), and Ameren (AEE) are up more than +2%. 

Renewable energy stocks are climbing today after Morgan Stanley on Tuesday raised its rating on the sector to overweight.  SolarEdge Technologies (SEDG) is up more than +7% to lead gainers in the S&P 500.  Also, Enphase Energy (ENPH) is up more than +5%, and NextEra Energy (NEE) is up more than +2%.

A slump of more than -4% in WTI crude prices today to a 7-1/4 month low is dragging energy stocks and energy service providers lower.  APA Corp (APA) is down more than -4% to lead losers in the S&P 500.  Also, Baker Hughes (BKR), Haliburton (HAL), Diamondback Energy (FANG), and Devon Energy (DVN) are down more than -3%.  Occidental Petroleum (OXY), Schlumberger (SLB), ConocoPhillips (COP), and Valero Energy (VLO) are down more than -2%.  Finally, Chevron (CVX) is down more than -2% to lead losers in the Dow Jones Industrials.

Transport companies are weaker today after Citigroup on Tuesday said it is “cautious” on the freight outlook.  Citigroup added that it is concerned about the pace of freight activity heading into year-end and that data points may skew negatively for the sector.  FedEx (FDX) is down more than -3% to lead losers in the S&P 500.  Also, Old Dominion Freight Line (ODFL) is down more than -2%, and United Parcel Service (UPS) is down more than -1%. 

UiPath (PATH) is down more than -14% today after forecasting Q3 revenue of $243 million-$245 million, weaker than the consensus of $269.5 million.  Morgan Stanley subsequently downgraded the stock to equal weight from overweight.   

Across the markets…

Dec 10-year T-notes (ZNZ22) today are up +9 ticks, and the 10-year T-note yield is down -5.2 bp at 3.298%. Dec T-notes recovered from a 2-1/2 month low posted in the overnight session, and the 10-year T-note yield fell back from a 2-1/2 month high of 3.361%.  Lower European government bond yields today are providing carry-over support for T-note prices. 

The dollar index (DXY00) this morning is up +0.34% at a new 20-year high. Divergent central bank policies are undercutting Asian currencies and boosting the dollar.  The Chinese yuan fell to a new 2-year low today as the PBOC continues to lower interest rates.  The yen sank to a new 24-year low against the dollar today as the BOJ is maintaining QE and record low-interest rates while the Fed is tightening monetary policy. Also, GBP/USD dropped to a 37-year low today as optimism fades about incoming Prime Minister Truss’s plans for the UK economy. 

EUR/USD (^EURUSD) today is up +0.09% as it consolidates just above Tuesday’s 20-year low.  Better-than-expected Eurozone economic reports today on Q2 Eurozone GDP and German industrial production gave the euro a boost.  Also, expectations for the ECB to raise interest rates by at least 50 bp at Thursday’s policy meeting are supporting EUR/USD.

Eurozone economic news today was bullish EUR/USD.  Eurozone Q2 GDP was revised upward to +0.8% q/q and +4.1% y/y from the originally reported +0.6% q/q and +3.9% y/y.  Also, German July industrial production fell -0.3% m/m, stronger than expectations of -0.6% m/m.

USD/JPY (^USDJPY) today is up +1.35%.  The yen today sank to a new 24-year low against the dollar.  A jump in the 10-year JGB bond yield today to a 2-1.2 month high of 0.258% has prompted the BOJ to boost its bond buying, which is bearish for the yen.  The BOJ announced today that it would boost the amount of bonds it purchases for 5-10 year maturities to 550 billion yen from 500 billion yen.  The BOJ is boosting its bond buying to keep bond yields from rising as the 10-yer JGB bond yield broke out above the bank’s 0.25% upper limit of its targeted yield range. 

Today’s Japanese economic news was bearish for the yen after the Japan July leading index CI fell -0.7 to a 17-month low of 99.6, weaker than expectations of 100.2. 

October gold (GCV22) is down -1.5 (-0.09%), and September silver (SIU22) is up +0.1479 (+0.82%).  Precious metals this morning are mixed.  Strength in the dollar is bearish for metals prices as the dollar index climbed to a new 20-year high today.  Gold also suffers from continued long liquidation pressure after long gold positions in ETFs fell to a 6-3/4 month low Tuesday.  Losses in gold prices were limited by lower global bond yields.  Silver prices rose today after Eurozone Q2 GDP was revised higher, a bullish factor for industrial metals demand. 

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