Stocks Edge Lower as Bond Yields Rise on Strength in U.S. PPI

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is down -0.01%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.32%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.04%.  

U.S. November producer prices rose more than expected this morning, bolstering speculation the Fed will keep monetary policy tighter for longer.  U.S. Nov PPI final demand rose +7.4% y/y, above expectations of +7.2% y/y. Stock indexes recovered from their worst levels after the University of Michigan U.S. Dec consumer sentiment rose more than expected.

The stronger-than-expected U.S Nov PPI report boosted T-note yields, which weighed on stocks.  The 10-year T-note yield up +7.3 bp to 3.555%.  Fed officials have recently signaled that the Fed will downshift to a +50 bp rate hike at next week’s FOMC meeting after four straight +75 bp increases. 

Stock indexes moved higher in overnight trading on strength in technology stocks, with Broadcom up more than +3% today after reporting better-than-expected Q4 revenue and forecasting Q1 revenue above expectations.  Also, DocuSign surged more than +14% after reporting stronger-than-expected Q3 billings and raising its full-year billings forecast. 

Today’s U.S. producer price report was above expectations and was hawkish for Fed policy and can be considered a negative for stocks.  Nov PPI final demand rose +0.3% m/m and +7.4% y/y, above expectations of +0.2% m/m and +7.2% y/y.  Also, Nov PI ex-food & energy rose +0.4% m/m and +6.2% y/y, above expectations of +0.2% m/m and +5.9% y/y.

The University of Michigan’s U.S. Dec consumer sentiment rose +2.3 to 59.1, stronger than expectations of 57.0. 

Today’s stock movers…

AmerisourceBergen (ABC) is down more than -3% today after Walgreens Boots Alliance said it sold $1 billion of AmerisourceBergen shares and cut its stake in the company to 17% from 20%. 

Lululemon Athletica (LULU) is down more than -11% to lead losers in the Nasdaq 100 after reporting Q3 gross margins, a gauge of profitability, was 55.9%, below the consensus of 56.7%.

Cooper Cos (COO) is down more than -2% after reporting Q4 adjusted EPS of $2.75, weaker than the consensus of $3.11.

Pioneer Natural Resources (PXD) is down more than -2% after KeyBanc Capital Markets on Thursday cut its price target on the stock to $260 from $290. 

Netflix (NFLX) is up more than +4% after Wells Fargo Securities upgraded the stock to overweight from equal weight. 

Broadcom (AVGO) is up more than +3% after reporting Q4 adjusted net revenue of $8.93 billion, above the consensus of $8.90 billion, and forecasting Q1 revenue of $8.9 billion, stronger than the consensus of $8.8 billion.

DocuSign (DOCU) is up more than +14% to lead gainers in the Nasdaq 100 after reporting Q3 billings of $659.4 million, well above the consensus of $593.5 million, and raising its 2023 billings forecast to $2.63 billion-$2.64 billion from a previous estimate of $2.55 billion-$2.57 billion, stronger than the consensus of $2.56 billion.

Boeing (BA) is up more than +1% today to lead gainers in the Dow Jones Industrials after Wells Fargo Securities on Thursday raised its price target on the stock to $218 from $185.

Datadog (DDOG) is up more than +2% after an SEC filing showed that Iconiq, a large shareholder in the company, bought an additional $13.3 million shares of the stock on Dec 5.

Across the markets…

March 10-year T-notes (ZNH23) today are down -11 ticks, and the 10-year T-note yield is up +7.3 bp at 3.555%.  T-notes are under pressure after today’s U.S. Nov producer price report showed prices rose more than expected, bolstering concerns the Fed may keep monetary policy tighter for longer.  On the brighter side, while the +7.4% y/y PPI was above expectations, it at least fell back from October’s +8.1% y/y gain and was the smallest pace of increase in 18 months.

The dollar index (DXY00) this morning is up +0.24%.  The dollar is moderately higher today as an increase in T-note yields strengthens the dollar’s interest rate differentials.  Also, a slide in stocks today has boosted liquidity demand for the dollar.  However, strength in the yuan is limiting the upside in the dollar, with the yuan climbing to a 2-3/4 month high against the dollar today. 

EUR/USD (^EURUSD) today is down by -0.18%.  Dollar strength today is undercutting the euro.  EUR/USD is also under pressure on the outlook for the ECB to ease its pace of rate hikes to 50 bp next Thursday from a 75 bp rate hike in October. 

USD/JPY (^USDJPY) this morning is down by -0.29%.  The yen is moving higher today on speculation the BOJ may be looking to adjust its monetary policy.  Takehiko Makao, a contender to replace BOJ Governor Kuroda, said the BOJ should review its policy with gradual adjustments once the new leadership team is formed next spring.

February gold (GCG3) this morning is up +7.5 (+0.42%), and March silver (SIH23) is up +0.269 (+1.16%).  Precious metals prices this morning are moderately higher.  Gold prices are climbing today on increased demand as an inflation hedge after U.S. Nov producer prices rose more than expected. Silver prices are also climbing on hopes that Chinese demand for industrial metals will improve as the government eases Covid restrictions and allows the economy to reopen.  Higher global government bond yields today are limiting the upside in gold prices.  Also, gold continues to be undercut by fund liquidation as long positions in gold ETFs dropped to a new 2-1/2 year low Monday.

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