Stocks Rally as Slower Inflation Eases Fed Rate-Hike Concerns

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is up +1.58%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.94%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +2.50%. Stock indexes this morning are moderately higher, with the S&P 500 climbing to a 2-month high, the Dow Jones Industrials climbing to a 2-3/4 month high, and the Nasdaq 100 rising to a 1-3/4 month high. 

A slowdown in inflation has knocked T-note yields lower and lifted stocks this morning.   The 10-year T-note yield this morning fell to a 5-week low of 3.755% after U.S. Oct producer prices rose less than expected.  T-notes also rose on carry-over support from a rally in 10-year German bunds after ECB Council member Villeroy de Galhau said a slower pace of ECB rate hikes is likely after next month’s policy meeting.

Strength in chip stocks today is a bullish factor for the overall market after an SEC filing showed Warren Buffett’s Berkshire Hathaway took a $5 billion stake in Taiwan Semiconductor Manufacturing.  Also, a +6% jump in Walmart is underpinning stocks after it reported better-than-expected Q3 EPS and raised its full-year net sales forecast.

The U.S. Oct PPI final-demand index rose +8.0% y/y, weaker than expectations of +8.3% y/y and the weakest report in 15 months.  Oct PPI ex-food & energy rose +6.7% y/y, weaker than expectations of +7.2% y/y and the weakest report in 15 months. 

The U.S. Nov Empire manufacturing survey general business conditions index rose +13.6 to a 4-month high of 4.5, stronger than expectations of -6.0.

Comments today from Philadelphia Fed President Harker were dovish for Fed policy and bullish for stocks when he said, "in the upcoming months, in light of the cumulative tightening we have achieved, I expect we will slow the pace of our rate hikes as we approach a sufficiently restrictive stance." 

Today’s stock movers…

Chipmakers are advancing today after an SEC filing showed Warren Buffett’s Berkshire Hathaway acquired about 60 million American depository receipts (ADRs), about a $5 billion stake, in Taiwan Semiconductor Manufacturing.  As a result, Advanced Micro Devices (AMD) is up more than +6%. Also, Qualcomm (QCOM) and Marvell Technology (MRVL) are up more than +5%. In addition, Nvidia (NVDA),  ASML Holding NV (ASML), Broadcom (AVGO), Microchip Technology (MCHP), and NXP Semiconductors (NXPI) are up more than +2%. 

A decline in the 10-year T-note yield to a 5-week low today is giving technology stocks a boost.  Datadog (DDOG) is up more than +9% to lead gainers in the Nasdaq 100.  Also, Tesla (TSLA) and Autodesk (ADSK) are up more than +4%. In addition, Apple (AAPL), Netflix (NFLX), and Amazon.com (AMZN) are up more than +3%.

Paramount Global (PARA) is up more than +9% today to lead gainers in the S&P 500 after an SEC filing showed Berkshire Hathaway now owns 15% of the company’s Class B stock. 

Walmart (WMT) is up more than +6% today to lead gainers in the Dow Jones Industrials after reporting Q3 adjusted EPS of $1.50, well above the consensus of $1.32, and then raising its full-year net sales forecast to +5.5% from a previous estimate of +4.5%. 

U.S.-listed Chinese stocks are climbing today as market sentiment in Chinese stocks has been boosted by signs of improving U.S.-China relations, China’s new property sector support plan, and some easing of Chinese Covid restrictions.  Alibaba Group Holding (BABA) is up more than +10%. Also, Pinduoduo (PDD) and JD.com (JD) are up more than +9%.  In addition, NetEase (NTES) is up more than +8%, and Baidu (BIDU) is up more than +7%.

Albemarle (ALB) is down more than -7% today to lead losers in the S&P 500 on concerns about weaker lithium demand in China.

Capital One Financial (COF) is down more than -5% today after Bank of America downgraded the stock to neutral from buy, citing October charge-offs and loan delinquencies that worsened from the year-ago period.

Defensive healthcare stocks are falling today as an easing of inflation concerns improved sentiment for tech and growth stocks, while leading to some rotation liquidation of defensive stocks.  Humana (HUM) and Elevance Health (ELV) are down more than -1%.  Also, Molina Healthcare (MOH) is down -0.9%, and UnitedHealth Group (UNH) is down more than -0.8% to lead losers in the Dow Jones Industrials. 

Across the markets…

Dec 10-year T-notes (ZNZ22) this morning are up by +12 ticks, and the 10-year T-note yield is down -3.9 bp at 3.814%.  Dec T-notes rallied to a 1-1/4 month high today, and the 10-year T-note yield fell to a 5-week low of 2.755%.   T-notes garnered support today from a rally in 10-year German bunds after ECB Council member Villeroy de Galhau said a slower pace of ECB rate hikes is likely after next month’s policy meeting.  Gains in T-notes accelerated this morning on an easing of inflation pressures after U.S. Oct PPI rose less than expected.

The dollar index (DXY00) this morning is down by -0.57% and fell to a 3-month low.  A decline in T-note yields today has undercut the dollar.  Also, a sharp rally in stocks today has curbed the liquidity demand for the dollar.  The dollar remained moderately lower this morning on dovish comments from Philadelphia Fed President Harker, who said he expects a slower pace of Fed rate hikes in the coming months. 

EUR/USD (^EURUSD) today is up by 0.65% and rallied t a 4-1/4 month high.  A slump in the dollar today has sparked short covering in EUR/USD.  Also, better-than-expected German wholesale price and investor sentiment reports today boosted the euro.  However, EUR/USD fell back from its best levels on dovish comments from ECB Council member Villeroy de Galhau who said the ECB might shift to a slower pace of rate hikes next year.

The German Oct wholesale price index eased to +17.4% y/y from the +19.9% y/y pace in Sep, the smallest pace of increase in 8 months.

The German ZEW expectations of economic growth index rose +22.5 to a 5-month high of -36.7, stronger than expectations of -51.0.

ECB Council member Villeroy de Galhau said the ECB might shift to a slower pace of rate hikes next year after bringing interest rates to a "normalization range" of around 2.0% in December, up from +1.5% currently.

USD/JPY (^USDJPY) today is down by -0.51%.  The yen rallied to a 2-1/2 month high against the dollar today after the 10-year T-note yield tumbled to a 5-week low.  Gains in the yen were limited after today’s economic news showed the Japanese economy unexpectedly contracted in Q3, which is dovish for BOJ policy.

Japan's Q3 GDP unexpectedly contracted by -1.2% y/y, weaker than expectations of +1.2% y/y.  The Q3 deflator fell -0.5% y/y, the seventh consecutive quarter of contraction.

December gold (GCZ2) this morning is down -3.0 (-0.17%), and December silver (SIZ22) is down -0.298 (-1.35%).  Precious metals prices this morning are slightly lower.  Gold fell back from a 3-month low today, and silver prices retreated from a 5-month high as a sharp rally in stocks reduced the safe-haven demand for precious metals. 

Gold was also under pressure after U.S Oct PPI rose less than expected, curbing demand for gold as an inflation hedge.  Silver also fell back after new Covid infections in China rose to a new 6-month high Monday, which may keep pandemic lockdowns in place that reduce economic activity and demand for industrial metals.   Metals prices today initially moved higher after the dollar index tumbled to a 3-month low.  Gold continues to be undercut by fund liquidation as long positions in gold ETF’s dropped to a new 2-1/2 year low last Thursday.

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