Stocks See Support from Retailer and Trade News

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is up +0.31%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.45%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.01%.  

Stocks this morning are mixed as uncertainty continues about Fed policy.  Stocks are seeing some downward pressure from today’s +3.5 bp rise in the 10-year T-note yield to 3.800%, which adds to yesterday’s +8 bp rise.  Still, the 10-year yield is trading at a comfortable half-percentage-point below the mid-October 15-year high of 4.34%.

Boston Fed President Susan Collins added to hawkish Fed commentary today by saying that she hasn’t made a decision on a December rate hike and that a +75 bp rate hike remains on the table.  She said, “I do not see clear, significant evidence that the overall inflation rate is coming down at this point.”

Stocks are seeing some carry-over support from a +0.9% rally in European stocks.  Also, U.S. retailers are seeing support from rallies in Gap, Ross Stores, and Footlocker on positive earnings and ratings news.  Chip stocks received some good news after chip-equipment maker Applied Materials rallied after providing better-than-expected sales guidance.

In addition, Bitcoin is slightly higher today, adding to yesterday’s +0.90% gain and providing a little risk relief.  However, Bitcoin this morning fell back from an early +0.5% gain after a harsh crypto tweet from Minneapolis Fed President Neel Kashkari, who said of the FTX debacle, “This isn’t case of 1 fraudulent company in a serious industry.  Entire notion of crypto is nonsense.  Not useful 4 payments.  No inflation hedge.  No scarcity. No taxing authority.  Just a tool of speculation and greater fools.”

The markets were pleased with news that U.S. Trade Representative Katherine Tai on Friday met with Chinese Commerce Minister Wang Wentao on the sidelines of an Asia-Pacific Economic Cooperation ministers meeting in Bangkok.  That was the first meeting between the new U.S.-Chinese trade ministers and could signal that trade relations might thaw by enough for the Biden administration to agree to drop some of the Trump-era U.S. tariffs on $300 billion of Chinese imports.  Dropping those tariffs could reduce U.S. inflation pressures and give the Fed a little more flexibility, and also boost U.S. corporate profits by allowing lower input prices.

Today’s Oct U.S. existing home sales report fell by -5.9% to 4.43 million units, which was a negative factor for the housing market.  However, that report was at least slightly better than expectations for a decline to 4.40 million.  Existing home sales have now fallen for a record nine straight months as high mortgage rates pummel demand.

Today’s Oct U.S. leading economic indicators report fell by -0.8% m/m, much weaker than expectations of -0.4%.  The Sep LEI was revised lower to -0.5% from -0.4% m/m.

The Euro Stoxx 50 index today is up +0.9%, with leaders including the energy and banking sectors.  China’s Shanghai Composite today closed down -0.58%, and Japan’s Nikkei Stock Index closed down -0.11%.  Chinese stocks continue to see downward pressure from rising Covid rates and concern that Chinese authorities will impose new restrictions.  China reported 23,132 new Covid infections on Wednesday, the most in more than 6-1/2 months.   

Today’s stock movers…

Applied Materials (AMAT) is up +1.0% after the chip equipment maker issued sales guidance for the current quarter that was better than expected, driven by an improvement in supply-chain disruptions.

DraftKings (DKNG) is up more than +3% after Piper Sandler began coverage with an overweight rating.

Gap (GPS) is up more than +6% on analyst upgrades after the company reported better-than-expected sales.

Ross Stores (ROST) is up more than +12% after the retailer reported better-than-expected Q3 earnings and raised its guidance for its full-year earnings due to sales momentum.

Footlocker (FL) is up more than +8% after the company reported Q3 sales that indicated solid consumer demand despite inflation pressures.

Alibaba (BABA) is down more than -3% today after the company missed Q3 revenue estimates, although in a positive factor, the Chinese e-commerce company announced larger stock buybacks. JD.com (JD) is down -2.2% despite reporting better-than-expected earnings.

Energy stocks are seeing weakness, with Dec WTI crude oil futures today down -2.7%, adding to Thursday’s sharp drop of -4.62%.  Exxon (XOM) is down -1.3%, Marathon Oil (MRO) is down -2.8%, Haliburton (HAL) is down -2.4%, and Schlumberger  (SLB) is down -0.4%.

Across the markets…

Dec 10-year T-notes (ZNZ22) today are down -5.5 ticks, and the 10-year T-note yield is up +3.5 bp at 3.800%.  T-note prices are under pressure this morning from hawkish comments from Boston Fed President Susan Collins and carry-over from Thursday’s hawkish comments from St. Louis Fed President Bullard, who said he sees interest rates going above 5%.  On the bullish side for T-note prices, today’s U.S. home sales and LEI reports indicated weakness in the U.S. economy.

The dollar index (DXY00) this morning is trading slightly lower despite slightly higher T-note yields and hawkish comments from Boston Fed President Collins.  USD/JPY (^USDJPY) is down -0.21%.

EUR/USD (^EURUSD) today is trading slightly lower.  The euro is seeing being undercut by ECB President Lagarde’s recession warning.  Ms. Lagarde said today, “We expect to raise rates further – and withdrawing accommodation may not be enough.”  She said that the “risk of a recession” has increased.

December gold (GCZ2) this morning is down -6.1 (-0.35%), and December silver (SIZ22) is up +0.100 (+0.48%).  Precious metals prices this morning are mixed as the dollar is little changed.  Gold is seeing some downward pressure from higher T-note and bund yields and hawkish comments from Boston Fed President Collins. Gold continues to be undercut by fund liquidation as long positions in gold ETF’s dropped to a new 2-1/2 year low Tuesday.

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