Central Bank Comments on Tighter Monetary Policy Weighs on Stocks

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is down -0.77%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.17%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -1.12%.

U.S. stock indexes this morning are moderately lower, with the S&P 500 dropping to a 2-week low and the Dow Jones Industrials falling to a 3-week low.   Stocks are falling today as hawkish central bank comments bolstered expectations of higher global interest rates.  Fed Governor Bowman said, "I don't think we're seeing what we need to be seeing, especially with inflation.  So I think we'll have to continue to raise the federal funds rate until we start to see a lot more progress on that." Also, ECB Executive Board member Schnabel warned that markets risked underestimating inflation.

Stock indexes recovered from their worst levels as bond yields fell on dovish central bank comments.  The 10-year T-note yield fell back from a 3-1/4 month high today of 3.925% and is down -1.3 bp to 3.848% to give stocks a boost after Richmond Fed President Barkin said he "supports 25 bp rate hikes" by the Fe as it "gives us the flexibility to respond" to data as it comes in.

Today’s U.S. economic news on import prices was bearish for stocks and bonds after the Jan import price index ex-petroleum unexpectedly rose +0.2% m/m, stronger than expectations of a decline of -0.3% m/m. Also, a slump in WTI crude prices of more than -3% today to a 1-1/2 week low is pushing energy stocks lower.

Negative corporate news is also weighing on stock index futures. Moderna is down more than -5% after reporting mixed results in the Phase 3 trial of its mRNA-1010 flu shot.  Also, Zebra Technologies is down more than -6% after forecasting weaker-than-expected Q1 adjusted EPS.  In addition, Epam Systems, Generac Holdings, and Airbnb are down more than -3% after being downgraded.

On the positive side, Deere & Co is up more than +6% after reporting stronger-than-expected Q1 net sales.  Also, DraftKings is up more than +8% after reporting better-than-expected Q4 revenue and raising its full-year revenue forecast.  In addition,  healthcare stocks are climbing today as a defensive play due to weakness in the overall market. 

Overseas markets are lower, with the Euro Stoxx 50 down -0.51%. Also, China’s Shanghai Composite stock index closed down -0.77%, and Japan’s Nikkei Stock index closed down -0.66%. 

Today’s stock movers…

A slump of more than -3% in WTI crude oil today to a 1-1/2 week low is weighing on energy stocks and energy service providers.  Devon Energy (DVN), Diamondback Energy (FANG), APA Corp (APA), Hess Corp (HES), and Phillips 66 (PSX) are down more than -4%.  Also, ConocoPhillips (COP), Haliburton (HAL), Marathon Oil (MRO), Baker Hughes (BKR), Exxon Mobil (XOM), and Valero Energy (VLO) are down more than -3%.  In addition, Chevron (CVX) is down more than -2% to lead losers in the Dow Jones Industrials. 

Moderna (MRNA) is down more than -5% to lead losers in the Nasdaq 100 after reporting mixed results in the Phase 3 trial of its mRNA-1010 flu shot. 

Zebra Technologies (ZBRA) is down more than -6% after forecasting Q1 adjusted EPS of $3.70 to $4.00, weaker than the consensus of $4.11.

Epam Systems (EPAM) is down more than -4% after Cowen downgraded the stock to market perform from outperform.

Generac Holdings (GNRC) is down more than -3% after Wells Fargo Securities downgraded the stock to equal weight from overweight.

Airbnb (ABNB) is down more than -3% after Phillip Securities downgraded the stock to accumulate from buy.

Deere & Co (DE) is up more than +6% to lead gainers in the S&P 500 after reporting Q1 net sales of $11.40 billion, above the consensus of $11.23 billion, and raising its full-year net income forecast to $8.75 billion-$9.25 billion from a previous estimate of $8.0 billion-$8.5 billion. 

DraftKings (DKNG) is up more than +18% after reporting Q4 revenue of $855.1 million, stronger than the consensus of $798.6 million, and raising its full-year revenue forecast to $2.85 billion-$3.05 billion from a prior forecast of $2.8 billion-$3.0 billion, the midpoint above the consensus of $2.93 billion. 

PPL Corp (PPL) is up more than +1% after reporting Q4 operating revenue of $2,29 billion, well above the consensus of $1.33 billion.

GE Healthcare Technologies (GEHC) is up more than +1% after Mizuho Securities initiated coverage of et stock with a buy rating and a price target of $90.

Healthcare stocks are climbing today as a defensive play due to weakness in the overall market. UnitedHealth Group (UNH), Humana (HUM), Molina Healthcare (MOH), and Elevance Health (ELV) are all up more than +1%.

Coca-Cola (KO) is up more than +1% after Citigroup initiated coverage of the stock with a buy recommendation and a price target of $68. 

Across the markets…

March 10-year T-notes (ZNH23) today are up +2 ticks, and the 10-year T-note yield is down -1.3 bp at 3.848%.  Mar 10-year T-notes this morning recovered from a 3-1/4 month low, and the 10-year T-note yield fell back from a 3-1/4 month high of 3.925%.  T-notes erased early losses and moved slightly higher on dovish comments from Richmond Fed President Barkin, who said he "supports 25 bp rate hikes" by the Fed.  Also, a decline in German bund yields sparked short-covering in T-notes after the 10-year German bund yield fell back from a 7-week high of 2.568% and fell -1.8 bp to 2.460% after ECB Governing Council member de Galhau said ECB interest rate-hike bets have been volatile recently.   

The dollar index (DXY00) today is up by +0.28% and climbed to a 6-week high. The dollar is moving higher today on strength in T-note yields after this week’s stronger-than-expected U.S. economic data and Thursday’s hawkish comments from Cleveland Fed President Mester and St. Louis Fed President Bullard.  Also, the weakness in stocks today has boosted the liquidity demand for the dollar.

EUR/USD (^EURUSD) today is down by -0.07% and posted a 6-week low. Strength in the dollar today has sparked selling in the euro.  EUR/USD is also under pressure on dovish comments today from ECB Governing Council member de Galhau who said ECB interest rate-hike bets have been volatile recently.  His comments knocked the 10-year German bund yield to 3.460% from a 7-week high of 2.568% and weighed on the euro.  

USD/JPY (^USDJPY) today is up by +0.50%.  The yen tumbled today to a 1-3/4 month low against the dollar.  Higher T-note yields today are weighing on the yen.  Also, central bank divergence is pressuring the yen, with the Fed, ECB, and BOE raising interest rates while the BOJ maintains QE and record-low interest rates. 

April gold (GCJ3) this morning is down -16.5 (-0.89%), and March silver (SIH23) is down -0.420 (-1.93%).  Precious metals prices this morning are moderately lower, with gold falling to a 7-week low and silver sliding to a 2-1/2 month low.  A rally in the dollar index today to a 6-week high is undercutting metals prices.  Also, higher global bond yields today are weighing on metals prices.  In addition, recent hawkish central bank comments from Fed and ECB policymakers who support higher interest rates are 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 Thursday.

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