What you need to know…
After opening higher, the S&P 500 Index ($SPX) (SPY) is now down -0.69%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.71%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.41%.
Stocks fell back from their best levels this morning on hawkish comments from St. Louis Fed President Bullard, who said, "inflation is a serious problem,” and the Fed needs to continue to raise interest rates. Stocks were also under pressure after the 10-year T-note yield today climbed to a new 12-yer high of 3.972%.
U.S. Aug capital goods new orders nondefense ex-aircraft & parts rose +1.3% m/m, stronger than expectations of +0.2% m/m and the biggest increase in 7 months.
The U.S. July S&P CoreLogic composite-20 home price index rose +16.06% y/y, weaker than expectations of +17.05% and the smallest pace of increase in 15 months.
The Conference Board U.S. Sep consumer confidence index rose +4.4 to a 5-month high of 108.0, stronger than expectations of 104.6.
U.S. Aug new home sales unexpectedly rose +28.8% m/m to a 5-month high of 685,000, stronger than expectations of a decline to 500,000.
The U.S. Sep Richmond Fed manufacturing survey unexpectedly rose +8 to 0, stronger than expectations of a decline to -10.
St. Louis Fed President Bullard said, "inflation is a serious problem, and we need to be sure we respond to it appropriately. We have increased the policy rate substantially this year, and more increases are indicated" in the Fed's latest forecasts.
Chicago Fed President Evans said Fed forecasts are not showing "recession-like numbers," and by spring 2023, we can sit and wait on interest rates.
Goldman Sachs has downgraded equities to underweight in its global cross-asset allocation over 3 months, citing downward pressure on valuations and earnings due to rising real yields and the prospects of a recession. Goldman said, "current levels of equity valuations may not fully reflect related risks and might have to decline further to reach a market trough."
Today’s stock movers…
Travel and hotel stocks are climbing today, helped by global reopening, the easing of pandemic-related travel restrictions, and a broader market rebound. Royal Caribbean Cruises (RCL) is up more than +6% to lead gainers in the S&P 500. Also, Carnival (CCL) and Norwegian Cruise Line Holdings (NCLH) are up more than +5%. In addition, American Airlines Group (AAL), United Airlines Holdings (UAL), and Expedia Group (EXPE) are all up more than +3%.
Tesla (TSLA) is up more than +3% today after Electrek reported that Tesla management, in an email to employees, said the company would be delivering a “very high volume of vehicles to customers during the final days” of the third quarter.
Lucid Group (LCID) is up more than +4% today to lead gainers in the Nasdaq 100 after Cantor Fitzgerald initiated coverage on the stock with an overweight rating and a price target of $23.
A more than +3% rally in WTI Crude oil today is lifting energy stocks and energy service providers. Marathon Petroleum (MPC), Phillips 66 (PSX), Halliburton (HAL), and Valero Energy (VLO) are up more than +3%. Also, Schlumberger (SLB), ConocoPhillips (COP), Diamondback Energy (FANG), and Exxon Mobil (XOM) are up more than +2%.
Keurig Dr. Pepper (KDP) is down more than -2% today to lead losers in the S&P 500 and Nasdaq 100 after Goldman Sachs downgraded the stock to neutral.
Real estate stocks and property managers are retreating today for a second day as interest rates continue to rise with expectations of further Fed tightening. Vornado Realty Trust (VNO), Healthpeak Properties (PEAK), and Alexandria Real Estate Equities (ARE) are down by more than -1%.
Across the markets…
Dec 10-year T-notes (ZNZ22) today are down -11 ticks, and the 10-year T-note yield is up +0.6 bp at 3.930%. Dec T-notes this morning fell to a new 14-year nearest-futures low, and the 10-year T-note yield rose to a new 12-year high of 3.972%.
A surge in European government bond yields today is undercutting T-note prices today after the 10-year UK gilt yield today rose to a 13-year high of 4.389%, and the 10-year German bund yield rose to a 10-year high of 2.214%. Also, stronger-than-expected U.S. economic news today on Aug new home sales and Sep consumer confidence is weighing on T-notes. In addition, supply pressures are weighing on T-notes as the Treasury today will auction $44 billion of 5-year T-notes as part of this week’s $145 billion auction package of T-notes and floating-rate notes.
The dollar index (DXY00) this morning is down -0.16%. The dollar today is falling back from Monday’s 20-year high on a decline in T-note yields. Also, strength in EUR/USD weighs on the dollar after the 10-year German bund yield today climbed to a new 10-year high, strengthening the euro’s interest rate differential. In addition, strength in stocks today has curbed liquidity demand for the dollar.
EUR/USD (^EURUSD) today up +0.30%. A jump in European government bond yields supports moderate gains in the euro after the 10-year German bund yield today climbed to a new 10-year high. Hawkish comments today from ECB Governing Council member Centeno were also bullish for EUR/USD when he said the ECB would continue t raise interest rates until inflation is under control.
Eurozone Aug M3 money supply rose +6.1% y/y, stronger than expectations of +5.4% y/y.
ECB Governing Council member Centeno said, "for as long as we prolong the inflation peaks, we won't be able to give monetary policy the predictability that maybe we would wish, and the cycle of interest rate increases will continue."
USD/JPY (^USDJPY) today is down -0.10%. Lower T-note yields today are supporting modest gains in the yen. Also, an easing of price pressures in Japan supports the yen after Japan's Aug PPI services prices rose less than expected. However, gains in the yen were limited after the BOJ ramped up QE when it unexpectedly announced an unscheduled purchase of 150 billion yen of 5-to-10-year bonds and 100 billion yen of 10-to-25-year bonds.
Japan Aug PPI services prices eased to +1.9% y/y, weaker than expectations of +2.1% y/y.
October gold (GCV2) is up +13.8 (+0.85%), and December silver (SIZ22) is up +0.265 (+1.43%). Precious metals this morning are moderately higher. A weaker dollar today sparked short covering in metals. Gold prices also garnered support today from lower T-note yields. A rally in stocks today has curbed the safe-haven demand for precious metals. Also, fund liquidation of gold is bearish for prices as long positions in gold ETF’s dropped to an 8-1/2 month low Monday.
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