Higher Bond Yields Weigh on Tech Stocks

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is down -0.19%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.24%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -1.00%.

Stocks today are trading mostly lower, with higher T-note yields undercutting technology stocks.  Also, Tesla is down more than -6% at a 2-year low to weigh on tech stocks after Reuters reported the company would run vehicle production at its Shanghai plant at a reduced rate from Jan 3-19 and stop output from Jan 20-31 for the Chinese New Year.

Stocks have support today from hopes that global economic growth will improve after China took steps to roll back its Covid restrictions.  China said today that it would reopen its borders from Covid curbs and eliminate quarantine restrictions for inbound travelers starting January 8.  China’s National Health Commission said late Monday that people arriving in China would only be required to obtain negative Covid test results within 48 hours of departure.  Also, current limits on the number of international flights between China and the rest of the world and passenger capacity will be removed.

Higher global bond yields are bearish for stocks after the 10-year T-note yield today rose to a 1-month high of 3.832%, and the 10-year German bund yield jumped to an 11-year high of 2.534%.

On the positive side, energy stocks and metals producers are climbing today, with WTI crude oil up more than +1% at a 3-week high and COMEX copper up more than +2% on hopes that the reopening of China’s economy will boost energy and industrial metals demand.

Today’s U.S. economic news was mixed for stocks.  U.S. inventory data was bearish for stocks as it showed Nov wholesale inventories rose +1.0% m/m, above expectations of +0.3% m/m. Also, Nov retail inventories unexpectedly rise +0.1% m/m, above expectations for a -0.1% m/m decline. Conversely, the Oct S&P CoreLogic composite-20 home price index eased to a 2-year low of +8.64% y/y, but was stronger than expectations of +8.00% y/y.

Today’s stock movers…

Tesla (TSLA) is down more than -6% today at a 2-year low to lead losers in the S&P 500 and Nasdaq 100 after Reuters reported the company would run vehicle production at its Shanghai plant at a reduced rate from Jan 3-19 and stop output from Jan 20-31 for the Chinese New Year.

Apple (AAPL) is down more than -2% at a 1-1/2 year low to lead losers in the Dow Jones Industrials after the Nikkei reported that the company faces about $98 million in back taxes in Japan tied to bulk sales of duty-free devices to foreign tourists.

Higher T-note yields today are undercutting highly-valued chip stocks and weighing on the overall market. Nvidia (NVDA) is down more than -3%.  Also, NXP Semiconductors NV (NXPI), Marvell Technology (MRVL), Micron Technology (MU),  ASML Holding NV (ASML), and Microchip Technology (MCHP) are down more than -1%.

Southwest Airlines (LUV) is down more than -6% after it said it expects more cancellations caused by the winter storm that battered the U.S. to continue for at least several more days.  Citigroup said the storm chaos could hurt the company’s profits in Q4 by 3% to 5%.

CarMax (KMX) is down more than -3% on earnings pessimism, as six analysts have cut the company’s price targets by an average of 16% since it reported quarterly earnings last Thursday

U.S. casino operators with exposure to Macau are climbing today after China ended quarantine restrictions for inbound travelers.  Wynn Resorts (WYNN) is up more than +6% to lead gainers in the S&P 500.  Also, Las Vegas Sands (LVS) is up more than +4%, and MGM Resorts International (MGM) is up more than +1%. 

Energy stocks and energy service providers are climbing today, with WTI crude oil up more than +1% at a 3-week high after China took more steps to unwind its Covid Zero policy. ConocoPhillips (COP), Devon Energy (DVN), Exxon Mobil (XOM), Haliburton (HAL), Marathon Petroleum (MPC), Hess Corp (HES), Baker Hughes (BKR), and Valero Energy (VLO) are up more than +1%. 

U.S.-listed Chinese stocks are climbing today after China took steps to reopen its economy and end Covid Zero policies.  JD.com (JD) is up more than +5% to lead gainers in the Nasdaq 100. Also, Alibaba Group Holding (BABA) and Baidu (BIDU) are up more than +4%.  In addition, Pinduoduo (PDD) is up more than +3%, and NetEase (NTES) is up more than +2%. 

Across the markets…

March 10-year T-notes (ZNH23) today are down -11 ticks, and the 10-year T-note yield is up +6.8 bp at 3.815%.  March T-notes fell to a 1-week low today, and the 10-year yield climbed to a 1-month high of 3.832%.  There is reduced safe-haven demand for T-notes today on ideas that the reopening of China’s economy from Covid restrictions will boost global economic growth.   Supply pressures are also undercutting T-notes as the Treasury will auction $42 billion of 2-year T-notes this afternoon as part of this week’s auction package of $142 billion in T-note and floating-rate notes. 

The dollar index (DXY00) today is down by -0.18% on reduced safe-haven demand after China eased travel restrictions.  The dollar is seeing underlying support from higher T-note yields and stock market losses.

EUR/USD (^EURUSD) today is up by +0.12%.  The euro climbed to a 1-1/2 week high today on hawkish ECB comments that pushed the 10-year German bund yield up to an 11-year high of 2.534%, strengthening the euro’s interest rate differentials.  Gains in the euro were limited after ECB Vice President Guindos undercut the euro when he said the Eurozone faces a "very difficult economic situation.”  

ECB Governing Council member Knot said he sees "quite a decent pace of tightening" through 50 bp rate hikes in the next several months before borrowing costs eventually peak by next summer.

ECB Vice President Guindos said the Eurozone faces a "very difficult economic situation as high inflation rates that we are seeing across Europe are coinciding with an economic slowdown and lower growth.”

USD/JPY (^USDJPY) is up by +0.37% as higher T-notes yields today weigh on the yen.  Weaker-than-expected Japanese economic news also pressured the yen after Japan Nov retail sales unexpectedly declined by the most in 5 months.

Japan Nov retail sales unexpectedly fell -1.1% m/m, weaker than expectations of +0.2% m/m and the biggest decline in 5 months.

February gold (GCG3) this morning is up +13.4 (+0.74%), and March silver (SIH23) is up +0.320 (+1.34%).  Precious metals prices are moderately higher today on speculation the reopening of China’s economy will boost global economic growth and inflation.  A slump in stocks today is also boosting the safe-haven demand for precious metals.  However, higher global government bond yields today are limiting gains in gold. 

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