Stocks Drop as Bond Yields Climb

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is down -0.60%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.46%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.90%.

Stocks are moderately lower today and are under pressure from rising bond yields.  A jump in the 10-year German bund yield today to an 11-year high today of 2.535% undercut T-note prices and pushed yields higher.  The 10-year T-note yield today is up +6.0 bp to 3.875%.  A -1% decline in European stocks today is also weighing on U.S. stock index futures.

Bond yields moved even higher, and stocks extended their losses after today’s U.S. economic news showed Chicago business activity increased more than expected in December, suggesting the economy can withstand more Fed rate hikes.

On the positive side, Tesla is up more than +1% in pre-market trading after Cathie Wood’s Ark Investment Management bought Tesla for its fund.  Also, Southwest Airlines is up nearly +1% after it said it is operating a normal flight schedule for today.

A negative factor for stocks is concern that there could be a global resurgence of Covid after China ended its Covid Zero policies and reopened its borders.  Spain today joined the U.S. and Italy in announcing that all air passengers from China would be required to test for Covid after almost half of the passengers on two flights from China to Milan were found to be infected with the virus. 

The U.S. MNI Dec Chicago PMI rose +7.7 to 44.9, stronger than expectations of 40.0.

Overseas markets today are mixed.  The Euro Stoxx 50 index is down -1.07%.  The Shanghai Composite index closed up +0.51%, and Japan’s Nikkei Stock index was unchanged.

Today’s stock movers…

Micron Technology (MU) is down more than -2% to lead chip stocks lower today after Argus Research downgraded the stock to hold from buy, citing the “prospects for deep operating losses over the next few quarters.”  Also, ASML Holding NV (ASML) and Marvell Technology (MRVL) are down more than -2%.  In addition, Qualcomm (QCOM), Nvidia (NVDA), KLA Corp (KLA), NXP Semiconductors NV (NXPI), Microchip Technology (MCHP), and Applied Materials (AMAT) are down more than -1%.  

Mega-cap technology stocks are under pressure today after the 10-year T-note yield climbed to a 6-week high.  Alphabet (GOOGL), Amazon.com (AMZN), Netflix (NFLX), Microsoft (MSFT), and Meta Platforms (META) are all down more than -1%.

Tesla (TSLA) is up more than +1%to lead gainers in the S&P 500 and Nasdaq 100 after a trading update showed Cathie Wood’s Ark Investment Management bought 22,514 shares of the stock. 

Southwest Airlines (LUV) is up more than +1% after it said it is operating a normal flight schedule for today.

Across the markets…

March 10-year T-notes (ZNH23) today are down -12 ticks, and the 10-year T-note yield is up +6.0 bp at 3.875%.  Mar T-notes today fell to a 6-week low, and the 10-year T-note yield rose to a 6-week high of 3.903% on negative carryover from a slump in European bond markets.  The 10-year German bund yield today climbed to an 11-year high of 2.535%.  Further losses in T-notes today may be limited on anticipation of buying by bond fund managers of longer-term U.S. Treasury securities tied to today’s month-end index rebalancing.

The dollar index (DXY00) today is up by +0.02%.  Ted olla this morning recovered from a 2-week low and is slightly higher after the 10-year T-note yield rose to a 6-week high.  Also, a slump in stocks has boosted liquidity demand for the dollar. The dollar in overnight trade initially moved lower on strength in the yuan, which rallied to a 4-month high against the dollar after the PBOC vowed to support the expansion of domestic demand. 

EUR/USD (^EURUSD) today is up by +0.12% at a 2-week high.  An easing of the energy crisis in the Eurozone is supportive for EUR/USD after European nat-gas prices today tumbled to a 10-1/4 month low.  Also, the jump in the 10-year German bund yield to an 11-year high today strengthened the euro’s interest rate differentials.   

Spain’s Dec CPI (EU harmonized) rose +5.6% y/y, weaker than expectations of +5.8% y/y and the slowest pace of increase in 13 months.  Spain is the Eurozone's fourth-largest economy.

USD/JPY (^USDJPY) today is down by -0.94%.  The yen today extended Thursday’s gains up to a 1-week high.  Speculation that the BOJ will end its negative-rate policy and raise interest rates next year has fueled short covering in the yen.  The yen rose against the dollar today even after the BOJ announced additional bond purchases for the third straight day.

The Bank of Japan (BOJ) today announced a third day of unscheduled bond purchases, saying it will buy unlimited amounts of two-year bonds at a yield of +0.04% and five-year debt at 0.24%, along with a total of 700 billion yen of one-to-10-year bonds and 300 billion of 10-to-25 year debt.  The BOJ's bond purchases climbed to about 17 trillion yen ($128 billion) in December, a monthly record, according to Bloomberg data.

February gold (GCG3) this morning is down -2.2 (-0.12%), and March silver (SIH23) is down -0.330 (-1.36%).  Precious metals prices this morning are moderately lower.  Higher global bond yields today are weighing on precious metal prices.  Silver prices are also under pressure on concern that widespread Covid outbreaks in China will curb economic activity and industrial metals demand.  Losses in gold are limited on increased demand for gold as a store of value after the BOJ boosted QE and announced additional bond purchases for the third consecutive session. 

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