Stocks Climb as a Fall in Inflation Expectations Boosts Market Sentiment

What you need to know…

The S&P 500 Index ($SPX) (SPY) this morning is up +1.15%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.93%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +1.64%. 

Stocks this morning are moderately higher, with the S&P 500, Down Jones Industrials, and the Nasdaq 100 posting 1-1/2 week highs.  Lower T-note yields today are giving technology stocks a boost, with the 10-year T-note yield down -3.6 bp to 3.281%.  Stocks are also finding support on a decline in inflation expectations after the 10-year breakeven inflation expectations rate today fell to a 6-week low of 2.401%.  Technical buying also helped lift stocks today after the S&P 500 crossed above its 100-day moving average.

U.S. stocks have carry-over support from a +0.82% rally in China’s Shanghai Composite to a 2-week high.  Chinese stocks rallied today on signs of easing price pressures after economic reports showed China's August consumer and producer prices rose less than expected.   Also, Chinese stocks rose after today’s news showed China Aug aggregate financing, the broadest measure of credit growth, rose more than expected.

Comments today from St. Louis Fed President Bullard were hawkish for Fed policy and bearish for stocks when he said he leans "more strongly" toward a 75 bp rate hike when the FOMC meets later this month.  He added that "Wall Street is underpricing the idea that inflation may just be relatively high, and it may take quite a while to bring it back to 2%.  This would mean interest rates have to be higher for longer."

Bank of America said data from EPFR Global shows U.S. stock funds had outflows of $10.9 billion in the week to September 7, the biggest exodus in 11 weeks.

Today’s stock movers…

Technology stocks are climbing today and are giving the overall market a boost.  Crowdstrike Holdings (CRWD) and Marvell Technology (MRVL) are up more than +3%.  Also, Nvidia (NVDA), Qualcomm (QCOM), Meta Platforms (META), Applied Materials (AMAT), Micron Technology (MU), Advanced Micro Devices (AMD), and Microchip Technology (MCHP) are up more than +2%.  

Regeneron Pharmaceuticals (REGN) is up more than +4% today on top of Thursday’s +18% surge after Morgan Stanley upgraded the stock to overweight from equal weight with a price target of $851. 

Dish Network (DISH) is up more than +5% today to lead gainers in the S&P 500 on signs of insider buying after SEC filings show that board member James Defranco bought $1.84 million of the company’s stock. 

PVH Corp (PVH) is up more than +4% today on signs of insider buying after SEC filings show that CEO Larsson and CFO Coughlin bought more than $1.2 million of the company’s stock.

Caterpillar (CAT) is up more than +3% today to lead gainers in the Dow Jones Industrials after the company reached a settlement with the IRS without any penalties for issues involving the 2007-2016 tax years.

Zscaler (ZS) is up more than +18% today to lead gainers in the Nasdaq 100 after reporting Q4 revenue of $318.1 million, above the consensus of $305.7 million, and forecast 2023 calculated billings of $1.92 billion-$1.94 billion, stronger than the consensus of $1.88 billion.

DocuSign (DOCU) is up more than +8% today after reporting Q2 revenue of $622.2 million, higher than the consensus of $584.4 million, and raised its forecast for 2023 billings to $2.55 billion-$2.57 billion from $2.52 billion-$2.54 billion, stronger than the consensus of $2.53 billion. 

Enphase Energy (ENPH) is down more than -6% today to lead losers in the S&P 500 after Guggenheim Securities downgraded the stock to neutral from buy. 

Across the markets…

Dec 10-year T-notes (ZNZ22) today are up +5 ticks, and the 10-year T-note yield is down -3.6 bp at 3.281%. Dec T-notes this morning are moderately higher on reduced inflation expectations after the 10-ear breakeven inflation rate today fell to a 6-week low of 2.401%.  Higher stocks and a jump in the 10-year German bud yield to a 2-3/4 month high today at 1.796% are limiting gains in T-note prices. 

The dollar index (DXY00) this morning is down -0.68% and fell to a 1-1/2 week low.  Strength in the euro today is weighing on the dollar after hawkish ECB comments pushed EUR/USD up to a 3-week high.  Also, the strength in stocks today has reduced the liquidity demand for the dollar. 

EUR/USD (^EURUSD) today is up +0.49% and posted a 3-week high.  The euro today has positive carry-over from Thursday when the ECB raised its main refinancing rate by 75 bp to 1.25% and said it "expects to raise rates further.”  Also, the euro rose after hawkish ECB comments today pushed up the 10-year German bund yield to a 2-1/2 month high, which strengthened the euro’s interest rate differentials. 

ECB Governing Council member Knot said Thursday's 75 bp rate hike by the ECB was a "powerful and big signal, but more steps should follow."

ECB Governing Council member Kazimir said the ECB needs to continue "resolute" hikes to tackle "unacceptably high" price gains.

ECB Governing Council member Muller warned that delaying interest rate hikes too much risks needing a "much sharper brake on the economy" later to bring prices under control.

France July manufacturing production fell -1.6%m/m, weaker than expectations of -0.5% m/m and the steepest pace of decline in 17 months.

USD/JPY (^USDJPY) today is down -1.06%.  Jaw-boning by BOJ Governor Kuroda today sparked short-covering in the yen.  BOJ Governor Kuroda held a meeting with Japanese Prime Minister Kishida today and said, "sudden moves in foreign exchange rates increase uncertainty for firms and are undesirable." The yen today is rebounding moderately from Wednesday’s 24-year low against the dollar. 

October gold (GCV22) is up +3.2 (+0.19%), and December silver (SIZ22) is up +0.163 (+0.88%).  Precious metals this morning are moderately higher, with gold at a 1-1/2 week high and silver climbing to a 2-week high.  A weaker dollar today is supportive of metals prices.  Lower T-note yields today are also supportive of gold prices.  However, gains in gold are limited from continued long liquidation pressure after long gold positions in ETFs fell to a 7-month low Thursday.  Silver prices are finding support after China bolstered steps to revive its housing market, which may boost industrial metals demand.

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