Stocks Stabilize after Positive U.S. Inflation News

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is up +0.38%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.26%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.15%.

Stocks today are mildly higher after Thursday’s sharp sell-off when the S&P 500 index fell by -1.45% and the Nasdaq 100 index fell by -2.49%.

Stock indexes this morning are trading slightly higher after today’s Nov U.S. deflator figures eased, although the core deflator was a bit stronger than expected.  Today’s Nov personal income and spending reports were also weak and were dovish for Fed policy.

On the negative side, the 10-year T-note yield this morning is up +4.4 bp at 3.723%.

U.S. stocks are being undercut as the Covid pandemic is exploding in China, with the potential for new variants to develop and affect the rest of the world.  Bloomberg reported today that the minutes from an internal meeting of China’s National Health Commission held on Wednesday showed that nearly 37 million people may have contracted Covid on a single day earlier this week and that a mind-bending 18% of the population (248 million people) likely contracted Covid just in the first 20 days of December.  The commission estimates that more than half of the residents in the Sichuan province and the capital of Beijing may have been infected. China, several weeks ago, abruptly dropped its Covid zero policy due to public protests.  Covid cases are reportedly deluging China’s hospitals and crematoriums. 

North Korea today fired two short-range ballistic missiles 250-350 kilometers into the waters off North Korea’s east coast.  The missile launches follow a drill earlier this week where the U.S. sent a bomber and F-22 stealth fighters to the Korean peninsula for joint drills with South Korea. North Korean leader Kim Jong Un called for a meeting in late December of his ruling Workers’ Party to review economic and political policies and set goals for next year.

Feb WTI crude oil prices are up +3.3% today after Russia said it might cut production by 500,000-700,000 bpd in response to Europe’s partial oil embargo on Russian oil imports.  Russia has threatened to retaliate for the European oil embargo and price cap and may be trying to at least talk oil prices higher.  However, the embargo seems to be having a significant impact, as Bloomberg reports that total oil shipments from Russia in mid-December fell by -54%.

The Nov U.S. PCE deflator, the Fed’s preferred inflation measure, eased to +0.1% m/m and +5.5% y/y from Oct’s revised +0.4% m/m and +6.1% y/y and was in line with market expectations.  The Nov core PCE deflator of +0.2% m/m was in line with market expectations and was down slightly from Oct’s revised +0.3% m/m.  On a year-on-year basis, the Nov core deflator eased to +4.7% from Oct’s +5.0% but was slightly above expectations of +4.6%.

Nov real personal spending was unchanged m/m, slightly weaker than expectations of +0.1% and down from Oct’s +0.5%.  Nov personal income fell to +0.1% m/m from Oct’s revised +0.9% and was slightly weaker than expectations of +0.2%.

Today’s Nov durable goods orders report of -2.1% m/m was weaker than expectations of -1.0%, and Oct was revised lower to +0.7% from +1.1%.  The Nov core capital goods orders report (ex defense and aircraft) of +0.2% m/m was slightly stronger than expectations of unchanged, but Oct was revised lower to +0.3% m/m from +0.6%. 

The final-Dec University of Michigan consumer sentiment index was revised higher by +0.6 points to 59.7 from the preliminary-Dec level of 59.1, which was stronger than expectations for an unrevised figure of 59.1.  The final-Dec figure of 59.7 was up by +2.9 points from November’s 5-month low of 56.8.  The final-Dec figure of 59.7 is only 9.7 points above the 42-year low of 50.0 posted earlier this year in June.

Nov new home sales rose by +5.8% to 640,000, which was much stronger than expectations for a drop to 600,000.  The report suggested that demand may be stabilizing after the 30-year mortgage rate has eased sharply by -88 bp to 6.20% from the late-October 20-year high of  7.08%.

The Euro Stoxx 50 index today is up +0.21%.  However, the Shanghai Composite index today fell by -0.28% for the seventh consecutive decline and the 11th decline in the last 13 sessions.  The Nikkei index today fell by -1.03%.

Today’s stock movers…

Tesla (TSLA) is down -1.72%, adding to Thursday’s -8.88% plunge to a new 2-year low, which was sparked by Musk’s recent stock sales and news that U.S. safety investigators are investigating a multi-vehicle crash on the San Francisco Bay Bridge involving a Tesla Model S that may have been guided by its automated systems. 

In a supportive factor for Tesla, CEO Musk, in a Twitter Spaces live-audio conversation late Thursday lasting more than an hour, promised not to sell any more stock for some two years after his recent $40 billion worth of Tesla stock sales.  In response to the view that he is ignoring Tesla due to his Twitter obsession, he claimed he has not missed a single important Tesla meeting. However, he voiced a downbeat outlook for Tesla sales next year, given his view that the U.S. is already in a recession and that the recession will be “comparable to 2009.”

Energy stocks and energy service providers are trading higher due to today’s rally in oil prices. Exxon Mobil (XOM) is up +2.1%, Haliburton (HAL) is up +2.0%,  and Valero Energy (VLO) is up +2.5%. 

Bitcoin (^BTCUSD)  is up +0.25% today, providing support for crypto stocks. Coinbase (COIN) is up +1.62%, and Marathon Digital (MARA) is up +2.72%.

Across the markets…

March 10-year T-notes (ZNH23) today are down -11 ticks, and the 10-year T-note yield is up +5.0 bp at 3.729%.  T-notes yields are higher as the Nov core PCE deflator came in a bit stronger than expected and the 10-year breakeven inflation expectations rate is up +3 bp at 2.23% due in part to the rally in crude oil prices.  The 10-year bund yield today is up +3.6 bp at 2.397% and edged to a new 2-month high, putting some upward pressure on U.S. yields.

The dollar index (DXY00) today is down by -0.13% on the softer U.S. inflation data, which was dovish for Fed policy.  The dollar is being underpinned by higher T-note yields.  EUR/USD (^EURUSD) is up +0.24%, and USD/JPY (^USDJPY) is down -0.37%.

February gold (GCG3) this morning is up +10.6 (+0.59%), and March silver (SIH23) is up +0.278 (+1.18%).  Precious metals prices are seeing support from the slightly weaker dollar.  Industrial metals are seeing some support from today’s stronger-than-expected U.S. new home sales report.

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