Stocks Decline as Strong U.S. Economic News Boosts Bond Yields

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is down -1.04%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.80%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -1.02%.  

Stocks this morning are moderately lower as bond yields rose after solid U.S. economic news bolstered speculation the Fed will keep its monetary policy tight to combat inflation.  The 10-year T-note yield is up sharply by +9.7 bp at 3.583%.

Tesla is down more than -4% today to weigh on technology stocks after it said it plans to reduce vehicle production at its Shanghai factory.

A rally in Chinese stocks is providing carry-over support to U.S. and global markets as the Shanghai Composite today rallied +1.76% to a 2-1/2 month high after Chinese authorities accelerated a shift toward reopening the economy.   

Another supportive factor for stocks is today’s +0.46% rally in Bitcoin (^BTCUSD) to a 3-week high after there was no news over the weekend of any fresh contagion from the collapse of FTX.com.

U.S. Oct factory orders rose +1.0% m/m, stronger than expectations of +0.7% m/m and the biggest increase in 4 months.

The U.S. Nov ISM services index unexpectedly rose +2.1 to 56.5, stronger than expectations of a decline to 53.5.

Today’s stock movers…

Weakness in bank stocks weighs on the overall market. Zions Bancorp (ZION), Signature Bank of New York (SBNY), PNC Financial Services Group (PNC), and Comerica (CMA) are down more than -4%.  Also, Fifth Third Bancorp (FITB), SVB Financial Group (SIVB), and Truist Financial Group (TFC) are down more than -3%.  In addition, US Bancorp (USB) and Citizens Financial Group (CFG) are down more than -2%. 

VF Corp (VFC) is down more than -7% to lead losers in the S&P 500aq 100 after cutting its full-year revenue forecast to up +3% to +4% from a previous prediction of up +5% to +6%.  Also, President Rendle said he is retiring as CEO. 

Tesla (TSLA) is down more than -4% to lead losers in the Nasdaq 100 after a Bloomberg report said the company plans to cut vehicle production at its Shanghai factory, which could reduce production by about -20%. 

Kroger (KR) is down more -than 3% after Deutsche Bank lowered its price target on the stock to $55 from $56.

Airline stocks are climbing today after Morgan Stanley said 2023 could be a “Goldilocks” year for air travel and boost earnings beyond current expectations.  United Airlines Holdings (UAL) is up more than +2%.  Also, Delta Air Lines (DAL) and American Airlines Group (AAL) are up more than +1%. 

U.S.-listed Chinese stocks are moving higher as China accelerates the easing of Covid restrictions after Shanghai, Shenzhen, and Guangzhou scrapped Covid testing requirements to enter most public venues, except some locations such as restaurants, bars, and nursing homes.  Baidu (BIDU) is up more than +3% to lead gainers in the Nasdaq 100.  Also, JD.com (JD) and Pinduduo (PDD) are up +0.2%.

MGM Resorts International (MGM) is up more than +2% to lead gainers in the S&P 500 after Truist Securities upgraded the stock to buy from hold amid renewed optimism on China reopening.

Activision Blizzard (ATVI) is up more than +1% after Bloomberg News reported that Microsoft is ready to fight for its $69 billion acquisition of the company if the U.S. Federal Trade Commission files a lawsuit seeking to block the deal.

Across the markets…

March 10-year T-notes (ZNH23) today are down -25 ticks, and the 10-year T-note yield is up +9.7 bp at 3.583%.  T-note prices are under pressure today on carry-over from last Friday’s stronger-than-expected U.S Nov payrolls report.  Losses in T-note prices accelerated this morning on stronger-than-expected U.S. economic news on Oct factory orders and Nov ISM services. 

The dollar index (DXY00) this morning is up by +0.39%.  The dollar today recovered from a 5-1/4 month low and is moderately higher.  An increase in T-note yields this morning has strengthened the dollar’s interest rate differentials.  The dollar initially moved lower today after the yuan rallied to a 2-1/2 month high against the dollar after China accelerated the easing of Covid restrictions. 

EUR/USD (^EURUSD) today is down -0.03%.  The euro today fell back from a 5-1/4 month high as strength in the dollar sparked long liquidation in EUR/USD.  Also, Eurozone Oct retail sales fell more than expected, and ECB Governing Council members Makhlouf and Villeroy de Galhau said they favored the ECB slowing its rate hike pace to 50 bp this month from 75 bp over the past four ECB meetings.  The euro today initially moved higher on optimism in the Eurozone’s economic outlook after today’s economic news showed the Eurozone Dec Sentix investor confidence index rose more than expected to a 6-month high. 

Eurozone Oct retail sales fell -1.8% m/m, weaker than expectations of -1.7% m/m and the biggest decline in 10 months.

Eurozone Dec Sentix investor confidence rose +9.9 to a 6-month high of -21.0, stronger than expectations of -27.5.

ECB Governing Council member Makhlouf said the ECB "will probably end up" hiking interest rates by 50 bp at this month's policy meeting.

ECB Governing Council member Villeroy de Galhau said, "it's desirable to bring rates to 2.0%," so the ECB should raise interest rates by 50 bp at the Dec 15 policy meeting.

USD/JPY (^USDJPY) this morning is up by +1.15%.  The yen is under pressure today from higher T-note yields. Also, an easing of Chinese Covid restrictions has sparked a rally in stocks that has curbed the safe-haven appeal of the yen.

Today’s economic news was bullish for the yen after the Japan Nov Jibun Bank services PMI was revised upward by +0.3 to 50.3 from the initially reported 50.0.

February gold (GCG3) this morning is down -7.9 (-0.44%), and March silver (SIH23) is down -0.400 (-1.72%).  Precious metals prices this morning erased early gains and are moderately lower, as gold fell back from a 3-1/2 month high and silver retreated from a 7-month high. A stronger dollar this morning is weighing on metals prices.  Gold prices are also being weighed down by higher global government bond yields.

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