Stocks Plummet as a Disappointing CPI Report Sends T-Note Yields Soaring

What you need to know…

The S&P 500 Index ($SPX) (SPY) this morning is down -2.50%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -2.20%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -3.36%. 

Stocks this morning are sharply lower.  A stronger-than-expected U.S. August consumer price report today sent T-note yield soaring and stocks plummeting.  The disappointing CPI report will likely keep the Fed on track to raise interest rates by 75 bp at next week’s FOMC meeting.  The 10-year T-note yield jumped by +8 bp to a 2-3/4 month high of 3.456% after the Aug CPI report.

U.S. stock indexes today initially moved higher in overnight trading on optimism that the worst of the inflation news was behind us.  JPMorgan Chase said today that they "maintain a pro-risk stance" as a soft landing is becoming the more likely scenario for the global economy.  They added that recent data pointing to moderating inflation and wage pressures, rebounding growth, and stabilizing consumer confidence suggest the world will avoid recession.

U.S. Aug CPI rose +0.1% m/m and +8.3% y/y, stronger than expectations of -0.1% m/m and +8.1% y/y.  U.S. Aug CPI ex-food & energy rose +0.6% m/m and +6.3% y/y, stronger than expectations of +0.3% m/m and +6.1% y/y.  Still, today’s Aug CPI report of +8.3% y/y remained below June’s 40-year peak of +9.1%, and today’s core CPI report of +6.3% y/y remained below March’s 40-year peak of +6.5% y/y.

Today’s stock movers…

Mega cap technology stocks are sinking today after a disappointing U.S. Aug CPI report pushed the 10-year T-note yield up to a 2-3/4 month high.  Datadog (DDOG) is down more than -7% to lead losers in the Nasdaq 100.  Also, Meta Platforms (META) is down more than -6% to lead losers in the S&P 500.  In addition, Nvidia (NVDA), Amazon.com (AMZN), and Advanced Micro Devices (AMD) are down more than -5%, while Adobe (ADBE), Netflix (NFLX), and Micron Technology (MU) are down more than -4%. 

Consumer discretionary stocks are falling today on concern today’s hotter-than-expected U.S. CPI report will keep the Fed aggressively raising interest rates, which could push the economy into recession.  Etsy (ETSY) and Mohawk Industries (MHK) are down more than -6%.  Also, Fortune Brands Home & Security (FBHS), Caesars Entertainment (CZR), and Whirlpool (WHR) are down more than -4%.  In addition, Nike (NKE) and Newell Brands (NWL) are down more than -3%. 

Tyson Foods (TSN) is down nearly -2% today after Argus Research Citigroup downgraded the stock to hold from buy.

Dow Inc (DOW) is down more than -4% today to lead losers in the Dow Jones Industrials after Jeffries downgraded the stock to hold, citing downside risk as rising interest rates further hir consumer confidence. 

Corteva (CTVA) is up more than +2% today to lead gainers in the S&P 500 after the company announced a $2 billion share buyback program in addition to its existing $1.5 billion program.

NetEase (NTES) is up +0.40% to lead gainers in the Nasdaq 100 after one of its games was on the list of 73 games approved by the Chinese government.

Across the markets…

Dec 10-year T-notes (ZNZ22) today are down -23 ticks, and the 10-year T-note yield is up +7.7 bp at 3.435%.  Dec T-notes this morning tumbled to a 2-3/4 month low, and the 10-year T-note yield jumped t a 2-3/4 month high of 3.456%.  The main bearish factor for T-note prices today was the stronger-than-expected U.S August consumer price report, which virtually cements the odds that the FOMC will raise the fed funds target range by 75 bp at next week’s meeting. Supply pressures are another bearish factor for T-notes as the Treasury will auction $18 billion of reopened 30-year T-bonds later today. 

The dollar index (DXY00) this morning is up +0.93%.  The dollar this morning recovered from a 2-week low and rallied moderately.  The dollar is climbing today after the stronger-than-expected U.S. Aug CPI report bolstered expectations for a 75 bp rate hike by the Fed at next week’s FOMC meeting.  Also, a stock slump today is boosting liquidity demand for the dollar.

EUR/USD (^EURUSD) today is down -1.02%.  The euro today is under pressure from a stronger dollar as a jump in the 10-year T-note yield to a 2-3/4 month high strengthened the dollar’s interest rate differentials.  Also, weaker than expected Eurozone economic news is bearish for EUR/USD after a gauge of German investor confidence today fell to a nearly 14-year low

The German Sep ZEW expectations of economic growth index fell -6.6 points to a nearly 14-year low of -61.9, weaker than expectations of -59.5.

USD/JPY (^USDJPY) today is up +0.73%.  The yen gave up overnight gains and is moderately lower today, just above last Wednesday’s 24-year low against the dollar.  Higher T-note yields today are hammering the yen after the 10-year T-note yield climbed to a 2-3/4 month high.  The stronger than expected U.S. CPI report today suggests the Fed is still a long way from pausing its rate-hike cycle, which will widen the divergence between the Fed and BOJ and keep the yen under pressure.

Today’s Japanese economic news was supportive of the yen.  Japan’s Q3 BSI large all-industry business conditions rose to 0.4 from -0.9 in Q2.  Also, Japan Aug PPI was unchanged at 9.0% y/y, stronger than expectations of a decline to 8.9% y/y.

October gold (GCV22) is down -26.8 (-1.55%), and December silver (SIZ22) is down -0.265 (-1.33%).  Precious metals this morning are moderately lower.  The strength in the dollar today is undercutting metals prices.  Precious metals are also being undercut by expectations that today’s strong U.S. CPI report will force the Fed to continue to aggressively raise interest rates.  Gold prices are also weighed down today from higher global bond yields, and continued long liquidation pressure after long gold positions in ETFs fell to a 7-month low Monday.

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