Stocks Lower as Treasury Yields Rise

What you need to know…

The S&P 500 Index ($SPX) (SPY) is down -0.8%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.27%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.73%. 

Stocks are being undercut by today’s rise in the 10-year T-note yield to a new 14-year high of 4.178%.  T-note yields are higher after today’s news that U.S. weekly jobless claims unexpectedly declined, a sign of strength in the labor market that is hawkish for Fed policy.

Stocks are lower despite better-than-expected Q3 corporate earnings results from AT&T, IBM, and Dow Inc.  U.S. stock indexes also garnered carry-over support from strength in European stocks after UK Prime Minster Truss announced her resignation.

This morning’s economic news was mixed for stocks. Weekly initial unemployment claims unexpectedly fell -12,000 to 214,000, showing a stronger labor market than expectations of an increase to 233,000.  Also, Sep existing home sales fell -1.5% to a 2-1/4 year low of 4.71 million, slightly stronger than expectations of 4.70 million.  Conversely, the Oct Philadelphia Fed business outlook survey rose +1.2 to -8.7, weaker than expectations of -5.0.  Also, Sep leading indicators fell -0.4% m/m, weaker than expectations of -0.3% m/m.

Today’s stock movers…

AT&T (T) is up more than +8% today to lead gainers in the S&P 500 after reporting Q3 adjusted EPS of 68 cents, better than the consensus of 60 cents, and raised its full-year adjusted EPS forecast to at least $2.50 from a prior estimate of $2.42-$2.46. 

Lam Research (LRCX) is up more than +8% today to lead gainers in the Nasdaq 100 after reporting Q1 adjusted EPS of $10.42, well above the consensus of $9.57.  Also, Summit Insights Group upgrade the stock to buy from hold. 

Dow Inc (DOW) is up more than +5% to lead gainers in the Dow Jones Industrials after reporting Q3 net sales of $14.12 billion, stronger than the consensus of $13.24 billion. 

International Business Machines (IBM) is up more than +4% today after reporting Q3 revenue of $14.11 billion, well above the consensus of $13.53 billion. 

Las Vegas Sands (LVS) is up more than +6% today after reporting Q3 property Ebitda of $191 million, better than the consensus of $170.9 million.

U.S.-listed Chinese stocks are moving higher today after Bloomberg reported that Chinese government officials are debating a shorter mandatory quarantine period for inbound travelers, a sign the government may begin to ease pandemic restrictions.  Pinduoduo (PDD) is up more than +7%.  Also, Alibaba Group Holding (BABA), JD.com (JD), and Baidu (BIDU) are up more than +4%.

Datadog (DDOG) is up more than +6% today after Canaccord Genuity upgraded the stock to buy from hold. 

Allstate (ALL) is down more than -10% today to lead losers in the S&P 500 after announcing a preliminary Q3 adjusted net loss of between -$400 million and -$450 million.

Tesla (TSLA) is down more than -5% today to lead losers in the Nasdaq 100 after reporting Q3 revenue of $21.45 billion, weaker than the consensus of $22.09 billion.

Kinder Morgan (KMI) is down more than -4% today after forecasting full-year adjusted Ebitda of $7.20 billion, weaker than the consensus of $7.49 billion. 

Union Pacific (UNP) is down more than -3% today after cutting its full-year forecast for carload volume growth to up +3% from a previous estimate of up +5%, citing waning cargo demand.

Equifax (EFX) is down more than -3% today after cutting its full-year adjusted EPS forecast to $7.49-$7.59 from a prior view of $7.55-$7.80, weaker than the consensus of $7.62.

Across the markets…

Dec 10-year T-notes (ZNZ22) today are down by -5 ticks, and the 10-year T-note yield is up +3.4 bp at 4.167%.  Dec T-note prices this morning dropped to a 15-year nearest-futures low, and the 10-year T-note yield rose to a 14-year high of 4.178%. T-note prices are under pressure from rising German bund yields after today’s economic news showed German Sep producer prices rose at a record pace, which pushed the 10-year German bund yield up to an 11-year high of 2.457%.  Also, rising U.S. inflation expectations are weighing on T-notes after the 10-year breakeven inflation rate rose to a 5-week high today at 2.479%.

The dollar index (DXY00) this morning is down by -0.34%.  Strength in GBP/USD today is pressuring the dollar as the British pound rallied after UK Prime Minister Truss announced her resignation. Also, the yen recovered from a 32-year low against the dollar and is slightly higher today after comments from Japanese government officials fueled speculation that Japan would soon intervene in the forex market to support the yen.  Losses in the dollar were limited today after the 10-year T-note yield rose to a new 14-year high.

EUR/USD (^EURUSD) today is up by +0.23%.  Strength in German bund yields is supporting gains in the euro today after the 10-year German bund yield climbed to an 11-year high.  Also, an unexpected increase in French Oct manufacturing confidence supported EUR/USD. 

Today’s Eurozone economic news was supportive of EUR/USD.  France Oct manufacturing confidence unexpectedly rose +1 to 103, stronger than expectations of a decline to 100.  Also, the German Sep PPI rose a record 45.8% y/y, stronger than expectations of +45.4% y/y.

USD/JPY (^USDJPY) today is down by -0.02%.  The yen today recovered slightly from a new 32-year low against the dollar.  Comments today from Masato Kanda, Japan's top currency official, sparked short covering in the yen when he said excessive moves in currency markets "are becoming even more intolerable."  The yen initially dropped to a 32-year low today after the BOJ announced unscheduled bond purchases to lower government bond yields.

Today’s Japanese trade news was supportive of the yen.  Japan Sep exports rose +28.9% y/y, stronger than expectations of +26.6% y/y and the biggest increase in 14 months.  However, Japan Sep imports rose +45.9% y/y, stronger than expectations of +44.9% y/y.

The BOJ today announced unscheduled bond purchases of 250 billion yen ($1.7 billion) of 5-year maturities and longer after the 10-year JGB bond yield rose above +0.25%, the upper limit of the BOJ's 10-year yield target.

December gold (GCZ2) is up +4.1 (+0.25%), and December silver (SIZ22) is up +0.196 (+1.07%).  Precious metals this morning are moderately higher, with gold recovering from a 3-week low.  A weaker dollar today is bullish for metals prices.  Gains in gold were limited after the 10-year German bund yield rose to an 11-year high today, and the 10-year T-note yield rose to a 14-year high.  Gold prices continue to be undercut by fund liquidation as long positions in gold ETF’s dropped to a 2-1/2 year low Wednesday. 

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