Stocks Mixed as China Covid Surge Weighs on Tech Stocks

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is up +0.08%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.44%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.40%.  

Stocks this morning on mixed.  M&A activity is supporting stocks, with Coupa Software up more than +5% after Bloomberg reported that Vista Equity Partners is exploring an acquisition of the company.  

Also, a rally of more than +2% in HP Inc is leading gainers in the S&P 500 on hopes that HP’s cut of as many as 6,000 jobs over the next three years will boost company profits.  Trading activity is subdued, with stock trading closing early today at 1300 EST.

Stocks are seeing support from a new Chinese stimulus measure after the People’s Bank of China today reduced the reserve requirement ratio for most banks by -25 bp to 11.00% from 11.25%, effective Dec 5.

Technology stocks are weaker and are pressuring Nasdaq futures this morning, with Apple down more than -1%.  Chinese authorities locked down the city of Zhengzhou, home to Apple's largest iPhone manufacturing site, for five days starting Friday due to surging Covid cases. Also, Reuters reported that Apple’s iPhone production in November at the Zhengzhou plant could fall -30% after worker protests at the plant disrupted operations. 

Also, a fall of more than -3% in Activision Blizzard is weighing on tech stocks after Politico reported that the US Federal Trade Commission is likely to file an antitrust lawsuit to block Microsoft’s $69 billion deal to buy the company.

Another bearish factor for global stocks is the continued surge in Chinese Covid infections after China reported a record 31,9874 new Covid infections on Thursday. The rise in infections dampens optimism that China’s economy may soon fully reopen as the government is forced to expand lockdowns and pandemic restrictions. 

Today’s stock movers…

Albemarle (ALB) is down more than -4% today to lead losers in the S&P 500 on concerns lithium production in Chile could be hampered by the ongoing trucker strike in the country.  Albemarle is the world’s biggest lithium producer, the key ingredient in modern batteries.

Activision Blizzard (ATVI) is down more than -3% after Politico reported that the US Federal Trade Commission is likely to file an antitrust lawsuit to block Microsoft’s $69 billion deal to buy the company.

Apple (AAPL) is down more than -1% to lead losers in the Dow Jones Industrials after the Chinese government said it would lock down the city of Zhengzhou, home to Apple's largest iPhone manufacturing site, for five days starting Friday due to surging Covid cases.  Also, a report from Reuters said that Apple’s iPhone production in November at the Zhengzhou plant could fall -30% after worker protests at the plant disrupted operations.

U.S.-listed Chinese stocks are moving lower today as record new Covid cases in China dampen optimism that the country will reopen soon. JD.com (JD) is down more than -4% to lead losers in the Nasdaq 100.  Also, Alibaba Group Holding (BABA) is down more than -3%. In addition, Baidu (BIDU) is down more than -2%, and Pinduoduo (PDD) and NetEase (NTES) are down nearly -1%.

HP Inc (HPQ) is up more than +2% to lead gainers in the S&P 500 on hopes that HP’s cut of as many as 6,000 jobs over the next three years will boost company profits.

Autodesk (ADSK) is up more than +1% today to lead gainers in the Nasdaq 100 after Bloomberg data showed the Fidelity Magellan Fund added 1.91 million shares of Autodesk in September.

Managed healthcare stocks are climbing today as defensive stocks see some support.  Molina Healthcare (MOH) is up more than 2%.  Also, UnitedHealth Group (UNH) is up more than +1% to lead gainers in the Dow Jones Industrials.  In addition, Elevance Health (ELV), HCA Healthcare (HCA), and Universal Health Services (UHS) are up more than +1%.

Across the markets…

Dec 10-year T-notes (ZNZ22) today are down -6 ticks, and the 10-year T-note yield is up +4.6 bp at 3.739%.  A jump in European government bond yields today is undercutting T-note prices.  The 10-year UK gilt yield is up +5.9 bp to 3.097%, and the 10-year German bund yield is up +11.3 bp at 1.963%.  Trading activity in T-notes is subdued today, with cash Treasury trading scheduled to close early at 1400 EST.

The dollar index (DXY00) this morning is up by +0.31%.  Higher T-note yields today are supportive of the dollar. Also, the dollar is climbing on weakness in the yuan, which fell to a 2-week low against the dollar today after Chinese Covid infections surged to a record high and after the PBOC cut the reserve requirement ratio for banks.

EUR/USD (^EURUSD) today is down by -0.44%.  A stronger dollar today is weighing on the euro.  EUR/USD also has negative carry-over from Thursday's account of the Oct 27 ECB meeting that said, "a few ECB members expressed a preference for increasing the refinancing rate by +50 bp."  The division among ECB policymakers shows support for an additional +75 bp rate hikes fading and may prompt the ECB to hike rates by only +50 bp at the December policy meeting. 

Today’s Eurozone economic news was mixed for the euro.  On the negative side, German Dec GfK consumer confidence rose +1.7 to -40.2, weaker than expectations of -39.6.  Conversely, German Q3 GDP was revised upward to +0.4% q/q, and +1.2% y/y from the initially reported +0.3% q/q and +1.1% y/y.

USD/JPY (^USDJPY) this morning is up by +0.59%.  Strength in T-note yields today is weighing on the yen. Inflation concerns are also undercutting the yen after today’s news that Tokyo’s Nov consumer prices ex-fresh food rose +3.6% y/y, the most in 40 years and above expectations of a +3.5% y/y increase.

December gold (GCZ2) this morning is up +3.5 (+0.20%), and December silver (SIZ22) is down -0.077 (-0.36%).  Precious metals prices this morning are mixed.  A stronger dollar today is weighing on metals prices.  Also, higher global government bond yields today are bearish for gold.  However, gold prices found support on increased demand as a store of value after China boosted stimulus measures when the PBOC today reduced the reserve requirement ratio for most banks by 25 bp.  In addition, signs of higher global inflation are boosting demand for gold as an inflation hedge after Tokyo;s Nov consumer prices ex-fresh food rose +3.6% y/y, the most in 40 years.

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