Stocks Sink as Hot U.S. Labor Market Keeps Fed Hawkish

What you need to know…

The S&P 500 Index ($SPX) (SPY) this morning is down -1.85%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -1.40%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -2.45%. 

Stocks this morning are moderately lower.  Stocks retreated after bond yields jumped when this morning’s economic news showed U.S. Sep nonfarm payrolls rose more than expected and the Sep unemployment rate unexpectedly declined.  The stronger-than-expected payroll report will keep the pressure on the Fed to keep aggressively raising interest rates.  As a result, the 10-year T-note yield jumped to a 1-week high of 3.906%. 

A slump in chip stocks today is also dragging the market lower, with Advanced Micro Devices down more than -7% after it reported Q3 revenue of $5.6 billion, well below the consensus of $6.71 billion, citing weak PC sales and a build-up of inventory in the supply chain.  The sell-off in chip stocks spread to Europe and Asia after Samsung Electronics today also reported disappointing Q3 earnings. 

U.S Sep nonfarm payrolls rose +263,000, stronger than expectations of +255,000.  The U.S. Sep unemployment rate unexpectedly fell -0.2 to 3.5%, stronger than expectations of no change at 3.7%.

U.S. Sep average hourly earnings rose +0.3% m/m and +5.0% y/y, right on expectations.

Comments this morning from New York Fed President Williams were hawkish for Fed policy and bearish for stocks when he said, "we need to get interest rates up further" and that the Fed needs to raise the fed funds rate to around 4.50% over time.

Today’s stock movers…

Chip stocks are selling off today and weighing on the overall market after Advanced Micro Devices reported Q3 revenue of $5.6 billion, well below the consensus of $6.71 billion, citing weak PC sales and a build-up of inventory in the supply chain.  Advanced Micro Devices (AMD) is down more than -7% to lead losers in the Nasdaq 100.  Also, ON Semiconductor Corp (ON) and Marvell Technology (MRVL) are down more than -6%. In addition, Intel (INTC), Nvidia (NVDA), Applied Materials (AMAT), ASML Holding NV (ASML), and Lam Research (LRCX) are down more than -4%. 

Computer and software stocks are falling today after AMD’s weak earnings report signals weak PC demand.  Microsoft (MSFT) is down more than -4% to lead losers in the Dow Jones Industrials.  Also, HP Inc (HP) is down more than -4%.  In addition, Hewlett Packard Enterprises (HPE), Autodesk (ADSK), Zebra Technologies (ZBRA), Cadence Design Systems (CDNS), Synopsys (SNPS), and F5 Inc (FFIV) are down more than -3%. 

CVS Health (CVS) is down more than -7% today to lead losers in the S&P 500, and after it said, the percentage of Aetna Medicare Advantage members in 4+ Star plans is expected to drop to 21% from 87% y/y.

A rally in WTI crude oil today to a 5-week high is boosting energy stocks and energy service providers.  APA Corp (APA) is up more than +2%.  Also, ConocoPhillips (COP) and Marathon Oil (MRO) are up more than +1%. In addition, Chevron (CVX) is up +0.4% to lead gainers in the Dow Jones Industrials.

Dexcom (DXCM) is up more than +8% today to lead gainers in the S&P 500 and Nasdaq 100 after the Centers for Medicare and Medicaid Services late Thursday proposed a local coverage decision to expand coverage of continuous glucose monitoring devices.

Across the markets…

Dec 10-year T-notes (ZNZ22) today are down -15 ticks, and the 10-year T-note yield is up +6.8 bp at 3.892%.  Dec 10-year T-notes fell to a 1-week low this morning, and the 10-year T-note yield rose to a 1-week high of 3.906%.  A stronger-than-expected U.S. Sep payrolls report today will pressure the Fed to raise interest rates aggressively. 

The dollar index (DXY00) this morning is up by +0.20% and posted a 1-week high.   The dollar is climbing after this morning’s better-than-expected U.S. Sep payrolls report pushed up T-note yields and keeps aggressive Fed rate hikes in play.  In addition, a slump in stocks today is also boosting the liquidity demand for the dollar. 

EUR/USD (^EURUSD) today is down by -0.28% and slid to a 1-week low. Dollar strength today is weighing on the euro along with weaker-than-expected German economic news on Aug retail sales and Aug industrial production.  In addition, signs of faster German import price inflation also weigh on EUR/USD after German Aug import prices rose more than expected at their fastest pace in more than 48 years.

German Aug retail sales fell -1.3% m/m, weaker than expectations of -1.2% m/m and the biggest decline in 4 months.

German Aug industrial production fell -0.8% m/m, weaker than expectations of  -0.5% m/m and the biggest decline in 5 months.

The German Aug import price index rose +32.7% y/y, stronger than expectations of 30.1% y/y and the largest increase in 48 years.

USD/JPY (^USDJPY) today is up +0.03%.  The yen today dropped to a 2-week low on strength in T-note yields. However, strength in Japanese economic news today limited losses in the yen.  Also, comments today from Masato Kanda, Japan’s chief currency official, underpinned the yen when he said he’s “never felt a limitation” on ammunition for currency intervention.  The yen fell today to 145.34, modestly above the 145.90 level where Japan had intervened previously in the currency market to support the yen.   

December gold (GCZ2) is down -13.7 (-0.50%), and December silver (SIZ22) is down -0.265 (-1.28%).  Precious metals this morning are moderately lower.  Today’s stronger-than-expected U.S. Sep payroll report is hawkish for Fed policy and weighs on metals prices.  Also, a rally in the dollar today to a 1-week high undercut metals prices. Gold is also under pressure today from higher global bond yields.  Gold prices continue to be undercut by fund liquidation as long positions in gold ETF’s dropped to a new 2-1/4 year low Thursday. 

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