Stocks Give Up Early Gains on Rising Inflation Expectations

What you need to know…

The S&P 500 Index ($SPX) (SPY) this morning is down -1.32%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.63%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -1.87%. 

Stocks this morning gave up an early advance and are moderately lower.  The S&P 500, Dow Jones Industrials, and the Nasdaq 100 retreated from 1-week highs this morning after T-note yields jumped when a gauge of inflation expectations rose more than expected.  The 10-year T-note yield rose +3.8 bp to 3.981% after the University of Michigan 5-10 year inflation expectations rose more than expected.

Stocks this morning initially moved higher on positive quarterly earnings results from JPMorgan Chase, Wells Fargo, and UnitedHealth Group.  Also, the University of Michigan U.S. Oct consumer sentiment rose more than expected to a 6-month high.

U.S. Sep retail sales were unchanged m/m, weaker than expectations of +0.2% m/m.  However, Sep retail sales ex-autos unexpectedly rose +0.1% m/m, stronger than expectations of -0.1% m/m. 

The U.S. Sep import price index ex-petroleum fell -0.5% m/m, a bigger decline than expectations of -0.4% m/m.

The University of Michigan U.S. Oct consumer sentiment rose +1.2 to a 6-month high of 59.8, stronger than expectations of 58.8. However, the University of Michigan Oct 5-10 year inflation expectations rose to 2.9%, stronger than expectations of 2.8%.

Today’s stock movers…

Wells Fargo & Co (WFC) is up more than +2% today to lead gainers in the S&P 500 after reporting Q3 revenue of $19.51 billion, above the consensus of $18.81 billion.

JPMorgan Chase (JPM) is up more than +3% today after reporting Q3 investment banking revenue of $1.71 billion, higher than the consensus of $1.59 billion. 

UnitedHealth Group (UNH) is up more than +2% today to lead gainers in the Dow Jones Industrials after reporting  Q3 EPS of $5.55, stronger than the consensus of $5.43, and then raised its full-year adjusted EPS forecast to $31.85-$22.05 from a previous forecast of $21,40-$21.90.

Delta Air Lines (DAL) is up more than +2% today after Cowen upgraded the stock to outperform from market perform. 

Higher T-note yields today are weighing on technology stocks. Lam Research (LRCX) is down more than -5% to lead losers in the Nasdaq 100.  Also, Nvidia (NVDA), ASML Holding NV (ASML), and Applied Materials (AMAT) are down more than -4%.  In addition, Tesla (TSLA), KLA Corp (KLAC), Advanced Micro Devices (AMD), Marvel Technology (MRVL), and Micron Technology (MU) are down more than -3%.

Morgan Stanley (MS) is down more than -4% today after reporting Q3 equities trading revenue of $2.46 billion, weaker than the consensus of $2.69 billion. 

First Republic Bank (FRC) is down more than -10% to lead losers in the S&P 500 after reporting Q3 revenue of $1.50 billion, weaker than the consensus of $1.54 billion.

Northrop Grumman (NOC) is down more than -4% today after JPMorgan Chase downgraded the stock to neutral from overweight.

Across the markets…

Dec 10-year T-notes (ZNZ22) today are down by -3 ticks, and the 10-year T-note yield is up +3.8 bp at 3.981%.  Dec T-note prices this morning gave up an early rally and are moderately lower.  T-notes gave up their gains after this morning’s economic news showed the University of Michigan's 5-10 year inflation expectations rose more than expected.  Also, a reversal in UK gilt yields weighed on T-notes after the 10-year UK gilt yield moved up from a 1-week low today of 3.896% to 4.246%.  T-notes this morning initially moved moderately higher after U.S. economic news showed Sep retail sales stagnated and the Sep import price index ex-petroleum fell more than expected.

The dollar index (DXY00) this morning is up by +0.73%.   Weakness in the yen is positive for the dollar after the yen today tumbled to a new 32-year low against the dollar.  Also, a slump in GBP/USD is giving the dollar a boost after the pound sank after UK Prime Minister Truss announced a revised tax plan and sacked Chancellor of the Exchequer Kwarteng. 

EUR/USD (^EURUSD) today is down by -0.34%.  The euro is under pressure today from a strong dollar and concern that ECB actions to tighten monetary policy will push the Eurozone economy into recession.  Also, EUR/USD fell back today after JPMorgan Chase cut its forecast for the euro.

ECB President Lagarde said risks to the inflation outlook are primarily on the upside, and "the ECB's Governing Council expects to raise interest rates further over the next several meetings." 

ECB Governing Council member Kazimir said the ECB's inflation-fighting efforts would require taking interest rates to levels that restrict economic expansion.

The German Sep wholesale price index rose +19.9% y/y, the biggest increase in 3 months.

JPMorgan Chase lowered its forecast for EUR/USD to 0.90 in Q1 of 2023 from 0.95, citing Europe's energy crisis, valuations, and growing risks to global growth.

USD/JPY (^USDJPY) today is up +0.79% and posted a new 32-year high. The yen continues to weaken on central bank divergence.  The BOJ vows to maintain monetary easing to support Japan’s economy, while the Fed, ECB, and BOE raise interest rates and tighten their monetary policies.  Also, a lack of currency intervention by the BOJ is allowing the yen to continue to weaken against the dollar. 

December gold (GCZ2) is down -20.2 (-1.20%), and December silver (SIZ22) is down -0.448 (-2.37%).  Precious metals this morning are moderately lower.  A stronger dollar today is weighing on metals prices.  Also, metals prices are under pressure on negative carry-over from Thursday’s U.S. CPI report, which rose more than expected and bolsters the outlook for Fed to boost rates by 75 bp at its November FOMC meeting. 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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