Markets Today: Stocks Fall as Bond Yields Rise on Inflation Concerns

Morning Markets

December S&P 500 futures (ESZ22) this morning are down by -1.03%.  Global inflation concerns have pushed bond yields higher and are undercutting stocks.  Germany’s Sep consumer prices rose more than expected at a record +10.9% y/y pace, which pushed up bund and T-note yields.  An unexpected decline in U.S. jobless claims to a 5-month low and hawkish comments from Cleveland Fed President Mester also pushed bond yields higher.  The 10-year German bund yield is up +14.1 bp to 2.262%, and the 10-year T-note yield is up +7.1 bp to 3.802%.

Weakness in technology stocks is also weighing on U.S. stock index futures today, with Apple down by more than -2% in pre-market trading after Bank of America Global Research downgraded the stock to neutral from buy. 

Cleveland Fed President Mester said it appears that U.S. labor demand is still outpacing supply, and interest rates are still not in restrictive territory.  She added that "real interest rates, judged by the expectations over the next year of inflation, have to be in positive territory and held there for a time."

U.S. weekly initial unemployment claims unexpectedly fell -16,000 to a 5-month low of 193,000, showing a stronger labor market than expectations of an increase to 215,000.

U.S. Q2 GDP was unrevised at -0.6% (q/q annualized).  Q2 personal consumption was revised upward to  +2.0% from +1.5%.  The Q2 core PCE deflator was revised upward to +4.7% q/q from 4.4% q/q.

The Euro Stoxx 50 today is down by -1.44%.   There is increased concern about a Eurozone recession after Germany's leading research institutes cut their German 2022 and 2023 GDP forecasts.   Also, inflation concerns boosted government bond yields today and knocked stocks lowers.  German Sep consumer prices rose more than expected at a record +10.9% y/y pace, which pushed the 10-year German bund yield up +14.1 bp to 2.262%, just below Wednesday’s 10-year high.  Stocks also were under pressure today after a gauge of Eurozone economic confidence fell more than expected to its lowest since 2020. 

Hawkish ECB comments today were bearish for stocks.  ECB Governing Council member Rehn said the ECB needs a "significant" rate increase at its meeting in October as small rate hike steps "aren't enough" in the current situation.  Also, ECB Governing Council member Simkus said he "wouldn't be surprised to see even higher inflation for September for the Eurozone," and a "75 bp rate hike" would be his choice for the ECB's October meeting.

Eurozone Sep economic confidence fell -3.6 to a 1-3/4 year low of 93.7, weaker than expectations of 95.0.

Germany's leading research institutes today cut their German 2022 GDP forecast to 1.4% from an April forecast of 2.7% and cut their German 2023 GDP forecast to -0.4% contraction from an April forecast of a 3.1% expansion due to the drastic increase in energy costs.

German Sep CPI (EU harmonized) rose a record +10.9% y/y, stronger than expectations of +10.2% y/y.

Asian markets today settled mixed.  China’s Shanghai Composite Index closed down mildly lower and Japan’s Nikkei Stock Index closed up +0.95%. 

China’s Shanghai Composite Index today fell to a 4-1/2 month low and closed mildly lower.  Recession concerns weighed on Chinese stocks, with losses in technology stocks leading the overall market lower.  Also, shipping companies and tanker stocks fell after the European Union proposed new sanctions on Russia that would ban European companies from shipping Russian oil to third countries above an internationally set price cap.

Chinese stocks recovered nearly all of their losses today on hopes for additional stimulus for China’s beleaguered housing sector after the People's Bank of China (PBOC), in a statement today, said China will roll out city-specific property policies to support demand, implement special loans dedicated to ensuring property completion and increase its magnitude within reason.

Japan’s Nikkei Stock Index today posted moderate gains on carry-over support from Wednesday’s rally in U.S. stocks.  M&A activity lifted Japanese bank stocks after Nagano Bank surged +14% on plans by Hachijuni Bank to acquire it through a share swap. Also, Eisai jumped +15% after reporting that their drug lecanemab developed with Biogen, showed success in slowing the progression of Alzheimer’s in a final-stage trial. 

Pre-Market U.S. Stock Movers

Apple (AAPL) fell nearly -3% in pre-market trading after Bank of America Global Research downgraded the stock to neutral from buy. 

U.S.-listed Chinese stocks are falling in pre-market trading on Chinese economic concerns after the Shanghai Composite dropped to a 4-1/2 month low.  Alibaba Group Holding (BABA) is down more than -3%.  Also, Pinduoduo (PDD), Baidu (BIDU), and JD.com (JD) are down more than -2%. 

CarMax (KMX) tumbled more than -11% in pre-market trading after reporting Q2 net sales and operating revenue of $8.14 billion, well below the consensus of $8.56 billion. 

Rite Aid (RAD) sank more than -11% in pre-market trading after reporting a Q2 adjusted loss per share of -63 cents, wider than the consensus of -50 cents, and then cut its 2023 adjusted Ebitda forecast to $450 million-$490 million from a prior forecast of $460 million-$500 million. 

Coinbase Global (COIN) fell more than -2% in pre-market trading after Wells Fargo Securities initiated coverage on the stock at underweight.

First Solar (FSLR) rose more than +1% in pre-market trading after Evercore ISI upgraded the stock to outperform from in line, saying the company is poised to benefit from the Inflation Reduction Act.

Occidental Petroleum (OXY) gained nearly +1% in pre-market trading after a regulatory filing showed Berkshire Hathaway purchased about 5.99 million shares of the stock from September 26 to 28.  Berkshire Hathaway is the top holder of Occidental Petroleum stock.

Alcoa (AA) jumped +7% in pre-market trading after aluminum prices jumped on the London Metal Exchange when Bloomberg reported the exchange plans to launch a discussion paper on a potential ban on new aluminum supplies from Russia.

Today’s U.S. Earnings Reports (9/29/2022)

Bed Bath & Beyond Inc (BBBY), CarMax Inc (KMX), Comtech Telecommunications Cor (CMTL), Micron Technology Inc (MU), NIKE Inc (NKE), Rite Aid Corp (RAD), Worthington Industries Inc (WOR).

• Pre-Market Brief: Stocks Mixed as Bond Yields Rebound
• Quite a Month This Week for US Stock Indexes
• This VIX Butterfly Spread Profits If VIX Is Between 30 and 50
• Stocks Rally as Bond Yields Plunge on BOE Bond-Buying