Stocks Soar as Bond Yields Plunge on Soft U.S. Consumer Prices

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is up +4.08%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +2.63%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +5.43%. Stock indexes this morning are surging, with the S&P 500 and Nasdaq 100 at 1-week highs and the Dow Jones Industrials at a 2-1/2 month high. 

Stocks are soaring today as the 10-year T-note yield dropped to a 1-month low of 3.82% after U.S. October consumer prices rose less than expected.  The weaker-than-expected U.S. Oct CPI news today bolstered expectations for the Fed to slow its pace of interest rate increase to +50 bp at the December FOMC meeting from the +75 bp rate hikes seen at the past four FOMC meetings. 

A sharp recovery in cryptocurrencies today after their 2-day plunge is another positive factor for stocks, with Bitcoin up sharply by more than 11%.  Bitcoin and other cryptocurrencies plunged Tuesday and Wednesday after crypto exchange Binance said it would not pursue an initial offer to acquire FTX.com. FTX.com CEO Bankman-Fried said his company faces a shortfall of up to $8 billion and needs $4 billion in fresh capital to remain solvent.  FTX.com is attempting to raise rescue financing in the form of debt, equity, or a combination of both.

U.S. Oct CPI rose +7.7% y/y, weaker than expectations of +7.9% y/y and the weakest report in 9 months.  In addition, U.S. Oct CPI ex-food & energy rose +6.3% y/y, weaker than expectations of +6.5% y/y.

U.S. weekly initial unemployment claims rose +7,000 to 225,000, showing a slightly weaker labor market than expectations of an increase to 220,000.

Dovish comments today from Dallas Fed President Logan were bullish for stocks when she said, "while I believe it may soon be appropriate to slow the pace of rate increases so we can better assess how financial and economic conditions are evolving, I also believe a slower pace should not be taken to represent easier policy."

Today’s stock movers…

Software stocks are soaring today to lead technology stocks higher after the better-than-expected U.S Oct CPI report knocked T-note yields sharply lower.  Atlassian Corp Plc (TEAM) is up more than +16% today to lead gainers in the Nasdaq 100.  Also, Workday (WDAY) is up more than +12%, and Autodesk (ADSK) and DocuSign (DOCU) are up more than +11%.  In addition, Crowdstrike Holdings (CRWD) is up more than +9%, and Microsoft (MSFT) and Salesforce (CRM) are up more than +6%.

Datadog (DDOG) is up more than +14% on signs of insider buying after an SEC filing showed Matthew Jacobson, a board member, bought $50 million of the company’s stock on Monday.

Homebuilders are moving higher today after the 10-year T-note yield plunged to a 1-month low, which puts downward pressure on mortgage rates and may boost housing demand.  Lennar (LEN) is up more than +14% to lead gainers in the S&P 500.  Also, PulteGroup (PHM) is up more than +12%.  In addition, DR Horton (DHI) and Toll Brothers (TOL) are up more than +11%. 

Home improvement stocks and suppliers are climbing today on speculation Hurricane Nicole in the U.S. Southeast will spur demand for home repair services and products.  Mohawk Industries (MHK) is up more than +12%.  Also, Lowe’s (LOW) is up more than +9%.  In addition, Home Depot (HD) is up more than +8% to lead gainers in the Dow Jones Industrials. 

Cboe Global Markets (CBOE) is down more than -5% today to lead losers in the S&P 500 on signs of insider selling after an SEC filing showed CEO Tilly sold $1.27 million of stock on Monday.

Seagen (SGEN) is down more than -5% to lead losers in the Nasdaq 100 on speculation the naming of new CEO Epstein reduces speculation the company could be acquired in a merger. 

Altria Group (MO) is down more than -1% after UBS downgraded the stock to sell from hold.

Across the markets…

Dec 10-year T-notes (ZNZ22) this morning are up sharply by +2-1/32 points, and the 10-year T-note yield is down -22.2 bp at 3.869%.  Dec T-notes surged to a 5-week high today, and the 10-year T-note yield tumbled to a 1-month low of 3.82%.  Today’s weaker-than-expected U.S. Oct CPI report sparked a sharp rally in T-notes and bolstered the outlook for the Fed to slow its pace of interest rate increase to +50 bp at the December FOMC meeting from the +75 bp rate hikes seen at the past four FOMC meetings.  The November refunding concludes today as the Treasury will auction $21 billion of 30-year T-bonds early this afternoon.

The dollar index (DXY00) this morning is sharply lower by -1.69%.  The dollar tumbled to an 8-week low today after the weaker-than-expected U.S. Oct CPI report hammered U.S. bond yields and sparked speculation the Fed will ease its pace of interest rate hikes.  Also, a sharp rally in stocks and cryptocurrencies today has curbed the liquidity demand for the dollar.

EUR/USD (^EURUSD) today is up sharply by +1.50%.  EUR/USD today jumped to an 8-week high as a plunge in the dollar sparked short covering in the euro.  The euro also garnered support today from hawkish comments from ECB Executive Board member Schnabel who said the risk of inflation persistence had risen further and the ECB needs to raise interest rates into restrictive territory.

USD/JPY (^USDJPY) today is down sharply by -3.26%.  The yen today soared to a 1-1/2 month high against the dollar.  A plunge in T-note yields today weakened the dollar’s interest rate differentials and sparked short covering in the yen.  Today’s Japanese economic news was bearish for the yen after Japan Oct machine tool orders fell -5.4% y/y, the biggest decline in 2 years..

December gold (GCZ2) this morning is up +34.3 (+2.00%), and December silver (SIZ22) is up +0.488 (+2.31%).  Precious metals prices this morning are sharply higher, with gold climbing to a 2-1/4 month high and silver soaring at a 4-1/2 month high.  A plunge in the dollar to an 8-week low today is boosting metals prices.  Gold prices are also climbing on today’s plunge in global government bond yields. In addition, rising Covid infections in China are boosting safe-haven demand for precious metals after China reported 8,404 new Covid infections on Wednesday, the most in more than six months.  Gold continues to be undercut by fund liquidation as long positions in gold ETF’s dropped to a new 2-1/2 year low Monday.

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