Stocks Rally as Lower Bond Yields Offset Weakness in Bank Stocks

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is up  +1%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.47%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +1.5%.

First Republic Bank, down -27% that is dragging peers lower after saying it is considering strategic options, including a sale. However, strength in technology stocks is pushing stocks higher as a decline in T-note yields is boosting chip stocks. Also, Adobe is up more than +4% after reporting better-than-expected Q1 adjusted EPS and raising its full-year adjusted EPS forecast.

Today’s the ECB announced a +50 bp rate hike .  Hopes were dashed that the ECB today might only raise rates by +25 bp due to the turmoil in U.S. and European financial markets.  The ECB’s move suggested that the Fed might also be encouraged plow ahead with rate hikes despite the banking turmoil.

The turmoil in global financial markets eased slightly today, with Credit Suisse AG up more than +16% on reduced liquidity concerns after the bank arranged to borrow as much as 50 billion francs from a Swiss National Bank liquidity facility. 

Global bond yields are mixed this morning.  An easing of European banking concerns has reduced the safe-haven demand for government debt and pushed European government bond yields higher.  Also, today’s +50 bp rate hike by the ECB boosted European bond yields.  The 10-year German bund yield is up +5.7 bp at 2.187%.

The 10-year T-note yield today is down -3.7 bp at 3.417%  as ongoing concerns about the health of U.S. banks are boosting safe-haven demand for T-notes.  However, T-note yields are seeing upward pressure from today’s U.S. economic reports that showed strength in the labor and housing markets.

U.S. weekly initial unemployment claims fell -20,000 to 192,000, showing a stronger labor market than expectations of 205,000.  Weekly continuing claims unexpectedly fell -29,000 to 1.684 million, showing a stronger labor market than expectations of an increase to 1.723 million. 

U.S Feb housing starts rose +9.8% m/m to a 5-month high of 1.450 million, stronger than expectations of 1.310 million.  Feb building permits, a proxy for future construction, rose +13.8% m/m to a 5-month high of 1.524 million, stronger than expectations of 1.343 million. 

The U.S. Mar Philadelphia Fed business outlook survey rose +1.1 to -23.2, weaker than expectations of -15.0.

On the positive side for inflation, the U.S. Feb import price index ex-petroleum unexpectedly fell -0.4% m/m, the biggest decline in 7 months and weaker than expectations of an increase of +0.1% m/m.

Overseas stock markets are mixed.  The Euro Stoxx 50 today is up +0.97%.  China’s Shanghai Composite stock index closed down -1.12%, and Japan’s Nikkei Stock Index closed down -0.80%. 

Today’s stock movers…

First Republic Bank (FRC) is down more than -31% to lead losers in the S&P 500 after a Bloomberg report said the bank is exploring strategic options, including a sale.

Bank stocks are falling this morning as concerns persist about contagion from the collapse of Silicon Valley Bank and the liquidity problems at Credit Suisse Group AG. KeyCorp (KEY) and Lincoln National Corp (LNC) are down more than -8%.  Also, Truist Financial (TFC), Zions Bancorp (ZION), and  Huntington Bancshares (HBAN) are down more than -6%.  In addition, US Bancorp (USB), Comerica (CMA), and Fifth Third Bancorp (FITB) are down more than -4%.

Fidelity National Information Services (FIS) is down more than -2% after Truist Securities cut its price target on the stock to $56 from $65.

Energy stocks and energy service providers are falling sharply for a second day, with the price of WTI crude down more than -2% near a 15-month low.  Haliburton (HAL) and Exxon Mobil (XOM) are down more than -3%.  Also, Diamondback Energy (FANG), ConocoPhillips (COP), Chevron (CVX), and Devon Energy (DVN) are down more than -2%.

Lower bond yields today are lifting chip stocks.  Advanced Micro Devices (AMD) is up more than +4% to lead gainers in the Nasdaq 100.  Also, Intel (INTC) is up more than +3% to lead gainers in the Dow Jones Industrials.  In addition, Qualcomm (QCOM) is up more than +2%.

Adobe (ADBE) is up more than +4% after reporting Q1 adjusted EPS of $3.80, above the consensus of $3.67, and raised its full-year adjusted EPS forecast to $15.30-$15.60 from a previous forecast of $15.15-$15.45, above the consensus of $15.31. 

Progressive Corp (PGR) is up more than +3% after Wells Fargo Securities double-upgraded the stock to overweight from underweight, saying the company has “turned the corner on growth.”

Foot Locker (FL) is up more than +2% after Telsey Advisory Group upgraded the stock to outperform from market perform.

Across the markets…

June 10-year T-notes (ZNM23) today are up +18 ticks, and the 10-year T-note yield is down -3.7 bp at 3.417%.  Stock weakness and ongoing bank jitters are boosting safe-haven demand for T-notes.  However, today’s stronger-than-expected U.S. economic reports undercut T-note prices.  Also, today’s +50 bp ECB rate hike pushed European government bond yields higher and weighed on T-notes.  The 10-year German bund yield is up +5.7 bp at 2.187%.

The dollar index (DXY00) today is down by -0.16% on pressure from lower T-note yields.  Also, today’s +50 bp ECB rate hike supported the the euro and undercut the dollar.

EUR/USD (^EURUSD) today is up by +0.24%.  Reduced European banking concerns are boosting the euro today, with Credit Suisse AG up more than +16% after it arranged to borrow from the Swiss National Bank’s liquidity facility.  Furthermore, EUR/USD extended its gains after the ECB raised interest rates by +50 bp and raised its 2023 Eurozone GDP estimate.

The ECB raised its main refinancing rate by +50 bp to 3.50% and said inflation is projected to remain too high for too long.  However, the ECB also refrained from signaling future rate moves, saying it would be data dependent.

The ECB raised its 2023 Eurozone GDP forecast to +1.0% from a prior forecast of +0.5% and cut its 2023 inflation forecast to +5.3% from a prior estimate of +6.3%.

USD/JPY (^USDJPY) today is down by -0.76%.  The yen today climbed to a 1-month high against the dollar and is moderately higher.  Lower T-note yields today are giving the yen a boost.  The yen also garnered safe-haven buying from the turmoil in the U.S. and European banking systems.

Today’s Japanese economic news was mixed for the yen.  On the positive side, Jan core machine orders rose +9.5% m/m, stronger than expectations of +1.4% m/m and the largest increase in 2-1/4 years.  Conversely, Jan industrial production was revised downward by -0.7 to -5.3% m/m from the initially reported -4.6% m/m, the biggest decline in 8 months.  Also, Japan trade data was weaker than expected as Japan Feb exports rose +6.5% y/y, weaker than expectations of +7.0% y/y, and Feb imports rose +8.3% y/y, weaker than expectations of +12.4% y/y.

April gold (GCJ3) this morning is down -3.3 (-0.17%), and May silver (SIK23) is up +0.018 (+0.08%).  Precious metals prices this morning are mixed.  An easing of European banking concerns is curbing safe-haven demand for precious metals after Credit Suisse Group AG arranged to borrow from a Swiss National Bank liquidity facility.  Also, today’s +50 bp ECB rate hike weighed on gold as speculation had risen that the banking turmoil might prompt the ECB to raise interest rates by only 25 bp.  A weaker dollar today and lower T-note yields are supportive of precious metals.  Also, ongoing U.S. banking concerns are boosting safe-haven demand for precious metals.

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