Stocks Mixed as Inflation Concerns Remain

What you need to know…

The S&P 500 Index ($SPX) (SPY) this morning is up +0.28%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.06%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.48%. 

Stocks this morning are mixed, with the Dow Jones Industrials falling to a 2-3/4 month low.  Stocks are stabilizing after Tuesday’s rout.  This morning's mixed U.S. PPI report sparked some short covering in stock index futures. Also, a rally of more than +2% in crude prices to a 1-week high today is boosting energy stocks. 

However, stocks are being undercut by today’s rise in the 10-year T-note yield to a 2-3/4 month high of 3.472% following the Aug PPI report.  Stocks plunged Tuesday after a stronger-than-expected U.S. Aug consumer price report bolstered expectations for the Fed to raise interest rates by 75 bp at next week’s FOMC meeting.

Today’s U.S. producer price data was mixed.  On the positive side, the Aug final-demand PPI fell -0.1% m/m, matching estimates, and Aug PPI final demand rose +8.7% y/y, slightly weaker than expectations of +8.8% y/y.  However, Aug core PPI rose +0.4% m/m and +7.3% y/y, stronger than expectations of +0.3% m/m and +7.0% y/y.

Today’s stock movers…

Energy stocks and energy service providers are climbing today, with the price of WTI crude up more than +2% at a 1-week high.  APA Corp (APA) is up more than +5%.  Also, Schlumberger (SLB), Haliburton (HAL), Baker Hughes (BKR), Devon Energy (DVN), and Marathon Oil (MRO) are up more than +3%.  Diamondback Energy (FANG), Occidental Petroleum (OXY), Exxon Mobil (XOM), and ConocoPhillips (COP) are up more than +3%.

Starbucks (SBUX) is up more than +6% today to lead gainers in the S&P 500 and Nasdaq 100 after the company raised its three-year outlook for profit and sales at an annual presentation to investors.

Moderna (MRNA) is up more than +5% today after Reuters reported the company had held talks to supply China with Covid vaccines. 

Johnson & Johnson (JNJ) is up nearly +2% today to lead gainers in the Dow Jones Industrials after the company’s board authorized a $5 billion stock buyback plan, its first in almost four years.

Railroad stocks are under pressure today.  Union Pacific (UNP) is down more than -3%, and CSX Corp (CSX) is down more than -3% to lead losers in the Nasdaq 100 after Bernstein downgraded both stocks to market perform from outperform.  Also, Norfolk Southern (NSC) is down more than -2% after it said it would halt train shipments of bulk commodities Thursday ahead of a potential U.S. rail worker strike on Friday. 

Nucor (NUE) is down more than -8% today to lead losers in the S&P 500 after forecasting Q3 EPS of $6.30-$6.40, well below the consensus of $7.74. 

Dow Inc (DOW) is down more than -2% today to lead losers in the Dow Jones Industrials after the company said it sees Q3 net sales and operating Ebitda -$600 million lower than consensus.

Oracle (ORCL) is down -4% today after Berenberg initiated a hold recommendation for the stock, citing balanced opportunities and risks for the company.

Across the markets…

Dec 10-year T-notes (ZNZ22) today are down -3 ticks, and the 10-year T-note yield is up +1.4 bp at 3.422%.  Dec T-notes this morning extended Tuesday’s losses to a new 2-3/4 month low, and the 10-year T-note yield rose to a 2-3/4 month high of 3.472%.  T-note prices today are still weighed down on negative carry-over from Tuesday when U.S August consumer prices rose more than expected, which nearly cements the chances that the FOMC will raise the fed funds target range by 75 bp at next week’s meeting.  T-notes remained moderately lower after this morning’s mixed U.S. August producer price report. 

The dollar index (DXY00) this morning is down -0.31%.  A modest recovery in stocks today has reduced the liquidity demand for the dollar.  Also, hawkish ECB comments today gave the euro a boost, and the yen strengthened on concerns that Japan may be close to intervening in forex markets to support the yen.  Losses in the dollar are limited after the 10-year T-note yield today rose to a new 2-3/4 month high, which strengthens the dollar’s interest rate differentials.

EUR/USD (^EURUSD) today is up +0.19%.  The euro today is moderately higher on dollar weakness and hawkish ECB comments.  Gains in EUR/USD are limited after today’s economic news showed Eurozone July industrial production fell more than expected and posted its steepest decline in 11 months.

ECB Chief Economist Lane said inflation remains far too high, and last week's 75 bp rate hike by the ECB was "appropriate."

ECB Governing Council member Simkus said, "inflation trends in the Eurozone are strong, therefore, at least a 50 bp increase in interest rates is needed" next month. 

Eurozone July industrial production fell -2.3% m/m, weaker than expectations of -1.1% m/m and the biggest decline in 11 months.

USD/JPY (^USDJPY) today is down -1.21%.  The yen recovered from overnight losses and is sharply higher today.  The yen rallied today on jawboning from Japan’s top currency official and after the BOJ conducted a rate check in currency markets, a possible precursor for currency intervention.  Higher T-note yields are bearish for the yen.

Masato Kanda, Japan's top currency official at the finance ministry, said today that there's no choice but to take necessary responses to speculative forex moves because excessive, unruly forex moves harm the economy and financial markets.

Today’s Japanese economic news was mixed for the yen.  On the positive side, Japan July core machine orders rose +5.3% m/m and +12.8% y/y, stronger than expectations of -0.6% m/m and +6.6% y/y.  Conversely, Japan July industrial production was revised downward to +0.8% m/m from the originally reported +1.0% m/m.

• Stocks Stabilize on a Mixed U.S. PPI Report
• Stocks Mixed After U.S. CPI Shock Raises Fed Rate Risks
• Stocks Plunge as Strong CPI Bolsters Case for Aggressive Fed Rate Hikes
• Dollar Surges on Hawkish U.S. August CPI