Strength in U.S. Producer Prices and Hawkish Fed Speak Weighs on Stocks

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is down -0.66%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.74%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.62%.

U.S. stock indexes this morning are moderately lower.   Stocks are under pressure after today’s U.S. Jan PPI report was stronger than expected. The report showed persistent inflation pressure that was hawkish for Fed policy. 

This morning’s larger-than-expected increase in U.S. Jan producer prices and hawkish comments from Cleveland Fed President Mester pushed the 10-year T-note yield up to a 1-1/2 month high of 3.867%.

U.S Jan final-demand PPI rose +0.7% m/m and +6.0% y/y, stronger than expectations of +0.4% m/m and +5.4% y/y.  Also, Jan PPI ex-food and energy rose +0.5% m/m and +5.4% y/y, stronger than expectations of +0.3% m/m and +4.9% y/y.

Cleveland Fed President Mester said she saw a "compelling" case for a +50 bp rate hike at the last FOMC meeting, and "at this juncture, the incoming data have not changed my view that we will need to bring the fed funds rate above 5% and hold it there for some time."

Negative corporate earnings results are also weighing on stock indexes.  Organon & Co is down more than -10% after reporting disappointing Q4 revenue. Also,  Host Hotels & Resorts is down more than -6% after forecasting weaker-than-expected 2023 AFFO/share.  In addition,  Paramount Global and Vulcan Materials are down more than -3% after reporting weaker-than-expected Q4 revenue.

On the positive side, West Pharmaceutical Services is up more than +15%, and Albemarle is up more than +5% after reporting better-than-expected Q4 adjusted EPS.  Also, Cisco Systems is up more than +4% after reporting stronger-than-expected Q2 revenue. In addition, Seagen and Twilio are up more than +13% after reporting Q4 revenue above estimates.

Other U.S. economic reports today were mixed for stocks.  On the weak side, Jan housing starts fell -4.5% m/m to a 2-1/2 year low of 1.309 million, weaker than expectations of 1.356 million.  Also, the Feb Philadelphia Fed business outlook survey unexpectedly fell -15.4 to a 2-3/4 year low of -24.3, weaker than expectations of -7.5.  Conversely, initial weekly unemployment claims unexpectedly fell -1,000 to 194,000, showing a stronger labor market than expectations of an increase to 200,000.

Strength in European stocks is providing carry-over support to U.S. stock index futures, with the Euro Stoxx 50 up +0.26% at a 13-month high. Meanwhile, China’s Shanghai Composite stock index closed down -0.96%, and Japan’s Nikkei Stock index closed up +0.71%. 

Today’s stock movers…

Organon & Co (OGN) is down more than -10% to lead losers in the S&P 500 after reporting Q4 revenue of $1.49 billion, below the consensus of $1.51 billion, and forecast 2023 revenue of $6.15 billion-$6.45 billion, with the midpoint below the consensus of $6.32 billion. 

Host Hotels & Resorts (HST) is down more than -6% after forecasting 2023 AFFO/share of $1.60 to $1.83, the midpoint weaker than the consensus of $1.81.

Henry Schein (HSIC) is down more than -6% after it said guidance for 2023 GAAP diluted EPS is not being provided at this time as the company is unable to provide, without unreasonable effort, an estimate of integration and restructuring costs.

Synopsys (SNPS) is down more than -4% to lead losers in the Nasdaq 100 after forecasting Q2 revenue of $1.36 billion-$1.39 billion, below the consensus of $1.43 billion. 

Nvidia (NVDA) is down more than -2% after DZ Bank AG downgraded the stock by two notches to sell from buy.

Paramount Global (PARA) is down more than -3% after reporting Q4 revenue of $8.13 billion, weaker than the consensus of $8.17 billion. 

Vulcan Materials (VMC) is down more than -3% after reporting Q4 revenue of $1.73 billion, well below the consensus of $1.84 billion, and forecasting 2023 adjusted Ebitda of $1.73 billion-$1.88 billion, with the midpoint below the consensus of $1.87 billion.

Shopify (SHOP) is down more than -14% after forecasting Q1 revenue growth in the high-teen percentages, weaker than the consensus of 20%. 

Datadog (DDOG) is down more than -2% in pre-market trading after forecasting 2023 adjusted EPS of $1.02-$1.09, weaker than the consensus of $1.12. 

West Pharmaceutical Services (WST) is up more than +15% to lead gainers in the S&P 500 after reporting Q4 adjusted EPS of $1.77, well above the consensus of $1.38, and forecasting 2023 adjusted EPS of $7.25-$7.40, stronger than the consensus of $7.23.

Albemarle (ALB) is up more than +5% after reporting Q4 adjusted EPS of $8.62, stronger than the consensus of $8.19 and forecast full-year adjusted EPS of $26.00-$33.00, the midpoint above the consensus of $28.17. 

Cisco Systems (CSCO) is up more than +4% to lead gainers in the Dow Jones Industrials after reporting Q2 revenue of $13.59 billion, above the consensus of $13.43 billion and raised its full-year revenue forecast to +9% to +10.5% from a previous estimate of +4.5% to +6.5%, stronger than the consensus of +5.7%.

Seagen (SGEN) is up more than +13% to lead gainers in the Nasdaq 100 after reporting Q4 revenue of $528 million, well above the consensus of $480.8 million. 

Twilio (TWLO) is up more than +18% after reporting Q4 revenue of $1.02 billion, above the consensus of $1.00 billion, and authorizing a $1 billion share buyback program. 

Zillow (ZG) is up more than +2% after reporting Q4 revenue of $435 million, above the consensus of $414.4 million.

Marathon Oil (MRO) is up more than +4% after reporting Q4 adjusted EPS of 88 cents, above the consensus of 84 cents.

Across the markets…

March 10-year T-notes (ZNH23) today are down -9 ticks, and the 10-year T-note yield is up +5.4 bp at 3.860%.  Mar 10-year T-notes this morning tumbled to a 3-1/4 month low, and the 10-year T-note yield rose to a 1-1/2 month high of 3.861%.  Stronger-than-expected U.S. economic reports today on weekly jobless claims and Jan producer prices bolstered the case for tighter Fed policy and weighed on T-note prices.  Losses in T-notes accelerated on hawkish comments from Cleveland Fed President Mester, who  said, "at this juncture, the incoming data have not changed my view that we will need to bring the fed funds rate above 5% and hold it there for some time." In addition, today’s jump in the 10-year German bund yield to a 1-1/2 month high of 2.519% undercut T-notes. 

The dollar index (DXY00) today is up by +0.16%.  The dollar today extended Wednesday’s gains up to a 1-1/4 month high.  Stronger-than-expected U.S. PPI and unemployment claims reports were hawkish for Fed policy and supported the dollar.  Gains in the dollar were limited after U.S. Jan housing starts fell more than -expected to a 2-1/2 year low, and the Feb Philadelphia Fed business outlook survey unexpectedly contracted to a 2-3/4 year low.

EUR/USD (^EURUSD) today is down by -0.23% but is holding above Monday’s 5-week low.  A stronger dollar today is undercutting the euro.  Also, dovish comments today from ECB Executive Board member Panetta weighed on EUR/USD when he said that small interest rate hikes would allow the ECB for more honed adjustment as previous tightening starts to slow economic activity.  

USD/JPY (^USDJPY) today is up by +0.16%.  The yen fell today for the fourth straight session and posted a 1-1/4 month low against the dollar.  A jump in T-note yields today is weighing on the yen.  Central bank divergence is also pressuring the yen, with the Fed, ECB, and BOE all raising interest rates while the BOJ maintains QE and record-low interest rates.  In addition, speculation that the appointment of former BOJ member Ueda to BOJ Governor will not affect BOJ policy is bearish for the yen.

Today’s Japanese trade news was mixed for the yen.  Jan exports unexpectedly rose +3.5% y/y, stronger than expectations of a decline of -1.7% y/y.  However, Jan imports rose +17.8% y/y, weaker than expectations of +20.6% y/y.

Other Japanese economic news bearish for the yen after Dec core machine orders rose +1.6% m/m, weaker than expectations of +2.8% m/m.

April gold (GCJ3) this morning is down -7.8 (-0.42%), and March silver (SIH23) is down -0.097 (-0.45%).  Precious metals prices this morning are moderately lower, with gold falling to a 1-1/2 month low.  A rally in the dollar index today to a 1-1/4 month high is bearish for metals prices. Also, higher global bond yields today are undercutting metals prices.  In addition, today’s stronger-than-expected U.S. PPI and unemployment claims reports bolstered the outlook for additional Fed rate hikes and were bearish for metals.  Finally, gold prices are under pressure due to the continued liquidation of gold holdings in ETFs after holdings of gold in ETFs fell to a new 2-3/4 year low Wednesday.

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