Stocks Rally After As-Expected CPI Report

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is up +0.56%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.75%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.67%.

Stock indexes are rallying, with the Dow Jones Industrials climbing to a 4-week high.  The U.S. Dec CPI report came in as expected, supporting a rally in stock index futures.  However, gains were limited after the core services gauge, excluding shelter, mentioned by Fed Chair Powell as a focus of policymakers, rose +0.3% m/m in Dec, higher than the +0.1% m/m increase in Nov.  Also, weekly U.S. jobless claims unexpectedly fell to a 3-1/2 month low, which is hawkish for Fed policy. 

Lower global bond yields this morning are bullish for stocks. The 10-year UK gilt yield dropped to a 3-1/2 week low today of 3.285%.  Also, the 10-year German bund yield fell to a 3-1/2 week low of 2.093%. The 10-year T-note yield fell to a 3-1/2 week low of 3.453%. 

Comments today from Philadelphia Fed President Harker were dovish for Fed policy and supportive of stocks when he said, "In my view, interest rate hikes of +25 bp will be appropriate going forward."

Positive corporate news supports stocks as airline stocks are climbing after American Airlines Group reported preliminary Q4 adjusted EPS above the consensus.  Also, Cognizant Technology Solutions jumped more than +7% after raising its Q4 revenue forecast and naming Infosys veteran Ravi Kumar Singisetti as its new CEO. 

U.S. weekly initial unemployment claims unexpectedly fell -1,000 to a 3-1/2 month low of 205,000, showing a stronger labor market than expectations of an increase to 215,000.

The U.S. Dec CPI report of -0.1% m/m and +6.5% y/y was right on expectations, and the +6.5% y/y gain was the was the slowest growth rate in 14 months. 

U.S. Dec CPI ex-food and energy rose +0.3% m/m and +5.7% y/y, right on expectations.  The +5.7% y/y gain was the smallest in a year.

Overseas markets today are higher.  The Euro Stoxx 50 index is up +0.74%.  The Shanghai Composite Stock index closed up by +0.05%, and Japan’s Nikkei Stock index closed up +0.01%.

Today’s stock movers…

Airline stocks are climbing today after American Airlines Group reported preliminary Q4 adjusted EPS of $1.12-$1.17, well above the consensus of 60 cents.  As a result, American Airlines Group (AAL) is up more than +5%.  Also, United Airlines Holdings (UAL) is up more than +4%, and Delta Air Lines (DAL) and Alaska Air Group (ALK) are up more than +2%.

Energy stocks and energy service providers are moving higher, with the price of WTI crude up more than +1% at a 1-week high. Haliburton (HAL), Marathon Petroleum (MPC), and Hess (HES) are up more than +3%.  Also, Devon Energy (DVN), Marathon Oil (MRO), Occidental Petroleum (OXY), Diamondback Energy (FANG), and Schlumberger (SLB) are up more than +2%.  

Cognizant Technology Solutions (CTSH) is up more than +7% to lead gainers in the S&P 500 and Nasdaq 100 after raising its Q4 revenue forecast to $4.80 billion from a prior forecast of $4.72 billion-$4.77 billion.  The company also named Infosys veteran Ravi Kumar Singisetti as CEO. 

Walt Disney (DIS) is up more than +3% to lead gainers in the Dow Jones Industrials after Rosenblatt Securities said the push by activist investor Peltz to the board of Disney could help lead to changes in management and cost-cutting that benefit the company.

Cleveland-Cliffs (CLF) is up more than +4% after Morgan Stanley upgraded the stock to overweight from equal weight.

Lucid Group (LCID) is up more than +3% after it reported that it built 7,180 vehicles in 2022, above its target of 6,000 to 7,000.

Illumina (ILMN) is down more than -5% to lead losers in the S&P 500 after Reuters reported that the company is likely to see an EU fine of 10% of its global annual turnover for closing its takeover of Grail without waiting for EU antitrust approval. 

Zscaler (ZS) is up more than -4% to lead losers in the Nasdaq 100 after Morgan Stanley downgraded the stock to equal weight from overweight.

Charles River Laboratories (CRL) is down more than -2% after Jeffries downgraded the stock to hold from buy, citing “heightened uncertainty” around primate supplies for the scientific organization. 

Tesla (TSLA) is down more than -2% on a Bloomberg report that said an expansion of the company’s plant in Shanghai had been delayed on concern from the Chinese government that Elon Musk’s Starlink could allow users to bypass China’s Great Firewall. 

Across the markets…

March 10-year T-notes (ZNH23) today are up +8 ticks, and the 10-year T-note yield is down -2.8 bp at 3.511%.  Mar T-notes today rallied to a 4-week high, and the 10-year T-note yield fell to a 4-week low of 3.453%.  Strength in European government bonds today is providing carry-over support to T-notes prices.  The 10-year UK gilt yield fell to a 4-week low today of 3.285%, and the 10-year German bund yield dropped to a 4-week low of 2.093%. 

T-notes fell back from their best levels on an as-expected U.S. Dec CPI report and after weekly U.S. jobless claims unexpectedly fell to a 3-1/2 month low, a hawkish factor for Fed policy.   In addition, supply pressures are weighing on T-notes as the Treasury will auction $18 billion of 30-year T-bonds this afternoon as part of this week’s $90 billion auction package of T-notes and T-bonds. 

The dollar index (DXY00) today is down by -0.35% at a 7-month low.  The dollar today is under pressure from lower T-note yields after the 10-year T-note dropped to a 4-week low, which weakens the dollar’s interest rate differentials.  Losses in the dollar accelerated this morning after Philadelphia Fed President Harker said he favored the Fed slowing its pace of rate hikes to 25 bp.

EUR/USD (^EURUSD) today is up by +0.08% and posted an 8-1/2 month high. Dollar weakness today is bullish for the euro.  However, EUR/USD fell back from its best levels after the 10-year German bund yield fell to a 4-week low, which weakened the euro’s interest rate differentials. 

USD/JPY (^USDJPY) today is down by -1.51%.  The yen today rallied sharply to a 7-1/4 month high against the dollar on speculation the BOJ will soon end its ultra-easy monetary policy. The yen surged today after Yomiuri reported that the BOJ would review the side effects of its ultra-easy monetary policy at their policy meeting next week.  The yen also garnered support today from soaring Japanese government bond yields after the 10-year JGB bond yield rose to a 7-1/2 year high today at 0.514%, above the upper limit of the BOJ’s 0.00%-0.50% targeted 10-year yield range. 

Today’s Japanese economic news supported the yen after the Dec eco watchers outlook survey unexpectedly rose +1.9 to 47.0, stronger than expectations of a decline to 45.0.

February gold (GCG3) this morning is up +5.0 (+0.27%), and March silver (SIH23) is up +0.269 (+1.15%).  Precious metals prices this morning are slightly higher, with gold posting an 8-month high and silver posting a 1-week high.  A slump in the dollar index today to a 7-month low is bullish for metals.  Also, lower global bond yields today are bullish for metals.  Precious metals also rallied on a benign U.S. Dec CPI report and dovish comments from Philadelphia Fed President Harker, who said he favored +25 bp federal funds rate hikes from now on.

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