Stocks Climb on China Optimism and Strength in Chip Stocks

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is up +1.76%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +1.63%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +1.87%. U.S. stock indexes are moderately higher on carry-over support from a +2.43% jump in China’s Shanghai Composite on speculation China is poised to exit its strict Covid Zero policy. 

Also, chip stocks are leading technology stocks higher today after Microchip Technology reported better-than-expected Q2 EPS and forecasted stronger-than-expected Q3 EPS. 

Stocks extended their gains this morning after T-note yields fell when Boston Fed President Collins said monetary policy is entering a new phase where it makes sense for the FOMC to move interest rates more slowly to balance risks.  The 10-year T-note yield is down -3.5 bp at 4.112%.  The current market consensus is for the FOMC to downshift to a +50 bp rate hike at the next meeting in December after four straight +75 bp rate hikes.

Stocks this morning briefly gave up some of their gains when T-note yields rose temporarily on a stronger-than-expected U.S. Oct payrolls report.  The 10-year T-note yield rose to 4.203% after Oct nonfarm payrolls rose +261,000, stronger than expectations of +193,000.  Also, Sep nonfarm payrolls were revised upward to +315,000 from the previously reported +263,000.

The U.S. Oct unemployment rate rose +0.2 to 3.7%, higher than expectations of 3.6%, as the Oct labor force participation rate edged down to 62.2% from 62.3% in Sep.

U.S. Oct average hourly earnings rose +0.4% m/m and +4.7% y/y, close to expectations.

Today’s stock movers…

Chip stocks are rallying today after Microchip Technology reported Q2 adjusted EPS of $1.46, better than the consensus of $1.44, and forecast Q3 adjusted EPS of $1.54-$1.56, stronger than the consensus of $1.46.  Microchip Technology (MCHP) and Marvell Technology (MRVL) are up more than +6%. Also, Nvidia (NVDA), Micron Technology (MU), Applied Materials (AMAT), and ASML Holding NV (ASML) are up more than +5%. In addition, Broadcom (AVGO), NXP Semiconductors NV (NXPI), Advanced Micro Devices (AMD), and Analog Devices (ADI) are up more than +4%.

Freeport-McMoRan (FCX) is up more than +11% today to lead gainers in the S&P 500 as copper prices jumped to a 1-1/2 month high and silver prices climbed to a 4-week high on optimism China was close to ending its Covid Zero policy. 

Starbucks (SBUX) is up more than +9% today to lead gainers in the Nasdaq 100 after reporting Q4 comparable same-store sales were up +7%, stronger than the consensus of +4.09%. 

Expedia Group (EXPE) is up more than +8% after reporting Q3 revenue of $3.62 billion, better than the consensus of $3.61 billion, and after RBC Capital markets said bookings in Q3 were below expectations due to Hurricane Ian. 

Arista Networks (ANET) jumped more than +7% in pre-market trading after Piper Sandler upgraded the stock to overweight from neutral. 

U.S.-listed Chinese stocks are sharply higher today amid more reopening speculation and after a Bloomberg report outlined progress in efforts to prevent the delisting of hundreds of Chinese stocks from U.S. exchanges.  Pinduoduo (PDD), JD.com (JD), and Baidu (BIDU) are up more than +8%. Also, Alibaba Group Holding (BABA) and NetEase (NTES) are up more than +6%. 

Warner Bros Discovery (WBD) is down more than -7% today to lead losers in the S&P 500 after reporting Q3 revenue of $9.82 billion, weaker than the consensus of $10.37 billion. 

Coterra Energy (CTRA) is down more than -5% after Siebert Williams Shank said it sees “lower-than-expected capital returns,” as Coterra is delivering $783 million versus Siebert’s estimate of $966.2 million.

Organon & Co (OGN) is down more than -4% after forecasting full-year revenue of $6.10 billion to $6.20 billion, the midpoint below the consensus of $6.18 billion. 

Atlassian Corp (TEAM) is down more than -28% today to lead losers in the Nasdaq 100 after forecasting Q2 revenue of $835 million-$855 million, well below the consensus of $882.6 million. Piper Sandler then downgraded the stock to neutral from overweight.  Other software stocks fell on the news, with Okta (OKTA) down more than -9%, Splunk (SPLK) down more than -4%, and Datadog (DDOG) down more than -3%. 

PayPal Holdings (PYPL) is down more than -3% after reporting Q3 total payment volume of $336.07 billion, weaker than the consensus of $343.25 billion, and cutting its full-year revenue forecast to $27.50 billion from a previous forecast of $27.85 billion, below the consensus of $27.86 billion. 

Across the markets…

Dec 10-year T-notes (ZNZ22) this morning are up by +7 ticks, and the 10-year T-note yield is down -3.5 bp at 4.112%.  T-note prices this morning recovered from early losses and are moderately higher after comments from Boston Fed President Collins sparked short covering when she said it makes sense for the FOMC to move interest rates more slowly to balance risks.  T-note prices this morning initially fell on a stronger-than-expected U.S. Oct payrolls report.  Also, higher German bund yields weighed on T-notes as the 10-year German bund yield climbed to a 1-1/2 week high today of 2.323%. 

The dollar index (DXY00) this morning is down sharply by -1.19%.  A surge of more than +1.5% in the Chinese yuan to a 1-week high today is putting pressure on the dollar.  Speculation that China is poised to exit its strict Covid Zero policy has sparked a rally in the yuan.  The dollar briefly recovered its losses on today’s stronger-than-expected U.S. Oct payroll report. 

EUR/USD (^EURUSD) today is up by +1.08%.  A weaker dollar today has boosted the euro.  Also, hawkish ECB comments today pushed the 10-year German bund yield up to a 1-1/2 week high and were bullish for EUR/USD.  In addition, an upward revision today to the Eurozone Oct S&P Global composite PMI was supportive of the euro.

ECB President Lagarde said, "withdrawing accommodation may not be enough to bring inflation back to our target," and interest rates may need to be lifted to restrictive levels to bring inflation back to the ECB's 2% target.  Also, ECB Vice President Guindos said inflation in the Eurozone would likely remain above the ECB's 2% target for an extended period, raising the risk of a price-wage spiral.

The Eurozone Oct S&P Global composite PMI was revised upward by +0.2 to 47.3 from the previously reported 47.1.

The Eurozone Sep PPI eased to +41.9% y/y from +43.4% y/y in Aug, right on expectations.

German Sep factory orders fell -4.0% m/m, weaker than expectations of -0.5% m/m and the biggest decline in 6 months.

USD/JPY (^USDJPY) today is down -0.60%.  Dollar weakness today has sparked some short covering in the yen.  Also, comments from Japanese Finance Minister Suzuki bolstered speculation that Japan could step up its currency intervention efforts when he warned that Japan couldn’t tolerate excessive forex moves, as they can negatively impact households and firms. 

December gold (GCZ2) this morning is up +34.9 (+2.14%), and December silver (SIZ22) is up +0.950 (+4.89%).  Precious metals prices this morning are sharply higher, with silver climbing to a 4-week high. Dollar weakness today is bullish for metals.  Silver is also soaring today on speculation China is poised to exit its strict Covid Zero policy, which would boost China’s economic growth and industrial metals demand. Gold continues to be undercut by fund liquidation as long positions in gold ETF’s dropped to a 2-1/2 year low Thursday.

• Marathon Petroleum's Good Q3 Results Signal Stock Upside and Option Plays
• Markets Today: Stocks Gain Despite a Strong U.S. Payrolls Report
• 3 Reasons Why Investors Should Avoid Opendoor (OPEN)
• Covered Call Screener Results For November 4th