Stocks Climb as U.S. Inflation Pressures Ease

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is up +0.62%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.55%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.72%.

U.S. stock indexes this morning are moderately higher, with the S&P 500 and Dow Jones Industrials climbing to 3-1/2 week highs and the Nasdaq 100 climbing to a 7-month high.

U.S. stock index futures this morning are moderately higher after a key U.S. inflation measure in Feb rose less than expected, suggesting the Fed may be close to ending its rate-hiking campaign. The easing of inflation pressures knocked bond yields lower and fueled a rally in technology stocks. 

U.S. stocks also have carryover support from today’s rally in Chinese stocks on signs the Chinese economy is recovering after Chinese manufacturing and service sector activity expanded more than expected this month.  The China Mar manufacturing PMI fell -0.7 to 51.9, stronger than expectations of 51.5. The Mar non-manufacturing PMI unexpectedly rose +1.9 to 58.2, stronger than expectations of a decline to 55.0 and the fastest pace of expansion in more than 11 years.

Today’s U.S. economic news was mixed for stocks. On the positive side, the U.S. Feb PCE core deflator, the Fed's preferred inflation gauge, unexpectedly eased to 4.6% y/y from 4.7% y/y in Jan, the slowest pace of increase in 16 months. Also, Feb personal income rose +0.3% m/m, stronger than expectations of +0.2% m/m.  In addition, the Mar MNI Chicago PMI unexpectedly rose +0.2 to 43.8, stronger than expectations of a decline to 43.0.

On the negative side, Feb personal spending rose +0.2% m/m, weaker than expectations of +0.3% m/m.  Also, the University of Michigan U.S. Mar consumer sentiment was revised lower to 62.0 from 63.4, weaker than expectations of 63.3.

Boston Fed President Collins said the Fed still has "more work to do" to bring inflation down and that Fed projections this month were a good measure of what she expects for interest rates and the economy, suggesting she favors one more 25 bp Fed rate hike.

Bank of America said EPFR Global data show investors in Q1 poured $508 billion into cash funds, the largest quarterly inflow in 3 years.  In addition, according to data from the Investment Company Institute, assets in U.S. money-market funds have risen to a record $5.2 trillion, with more than $300 billion added in the three weeks to March 30.

Global bond yields this morning are lower.  The 10-year T-note yield is down -3.0 bp at 3.519% after the U.S. Feb core PCE deflator rose less than expected.  The 10-year German bund yield fell from a 2-week high of 2.404% and is down -5.9 bp at 2.315%.  The 10-year UK gilt yield fell back from a 2-1/2 week high of 3.572% and is down -0.8 bp at 3.510%. 

Overseas stock markets are higher.  The Euro Stoxx 50 today is up +0.84%.  China’s Shanghai Composite stock index closed up +0.36%, and Japan’s Nikkei Stock Index closed up +0.93%. 

Today’s stock movers…

Technology stocks are moving higher as an easing of inflation concerns pushes T-note yields lower.  Datadog (DDOG) is up more than +6% to lead gainers in the Nasdaq 100.  Also, Atlassian Corp (TEAM) is up more than +5%, and Align Technology (ALGN) is up more than +4% to lead gainers in the S&P 500.  In addition, Crowdstrike Holdings (CRWD) is up more than +3%, and Alphabet (GOOGL), Palo Alto Networks (PANW), Tyler Technologies (TYL), and Zscaler (ZS) are up more than +2%.   

Tesla (TSLA) is up more than +2% after the company said it is looking to build a battery plant in the U.S., which could boost its auto sales as the Inflation Reduction Act says battery components of electric vehicles must be made or sourced in North America in order for the vehicles to be eligible for up to $7,500 in tax credits.  Rivian Automotive (RIVN) is up more than +6% to lead gainers in the Nasdaq 100.

Advanced Auto Parts (AAP) is up more than +1% after Barclays upgraded the stock to equal weight from underperform.

Generac (GNRC) is down more than -5% to lead losers in the S&P 500 after Bank of America downgraded the stock to underperform from neutral.

Ventas (VTR) is down more than -3% in pre-market trading after Fitch Ratings affirmed the company’s long-term issuer rating at BBB+ with a negative outlook.

Micron Technology (MU) is down more than -3% after the Cyberspace Administration of China said it would launch a cybersecurity review on Micron’s product sales in China.

Regional bank stocks are under pressure today on the concern many of them have unrealized losses on their books.  Zions Bancorp (ZION) is down more than -2%.  Also, Comerica (CMA) and Citizens Financial Group (CFG) are down more than -1%.  

Across the markets…

June 10-year T-notes (ZNM23) today are up +4 ticks, and the 10-year T-note yield is down -3.0 bp at 3.519%.  June T-notes this morning are moderately higher as U.S. price pressures eased after this morning’s news showed the Feb core PCE deflator rose less than expected.  However, gains in T-note prices were limited after Boston Fed President Collins said the Fed still has "more work to do" to bring inflation down.

The dollar index (DXY00) today is up by +0.32%.  The dollar today is moderately higher on some month-end and quarter-end buying.  Dollar gains were limited after today’s economic news showed U.S. price pressures receding after the Feb core PCE deflator rose less than expected, which is dovish for Fed policy.

EUR/USD (^EURUSD) today is down by -0.19%.  The euro today is moderately lower on dollar strength.  Also, today’s Eurozone economic news weighed on EUR/USD after Eurozone Mar CPI rose less than expected, German Feb retail sales unexpectedly declined, and German Mar unemployment rose more than expected.  However, losses in the euro were contained after Eurozone Mar core CPI rose at a record pace, which is hawkish for ECB policy. 

ECB Governing Council member Kazaks said Eurozone "inflation still remains high and continued rate increases will be necessary in order to bring inflation down."

Eurozone Mar CPI eased to +6.9% y/y from +8.5% y/y, better than expectations of +7.1% y/y and the slowest pace of increase in 13 months.  Mar core CPI rose to a record +5.7% y/y from +5.6% y/y in Feb, right on expectations.

German Mar unemployment rose by +16,000, showing a weaker labor market than expectations of +1,000. Also, the Mar unemployment rate rose +0.1to 5.6%, showing a weaker labor market than expectations of no change at 5.5%.

German Feb retail sales unexpectedly fell -1.3% m/m, weaker than expectations of +0.5% m/m.

The German Feb import price index eased to +2.8% y/y from +6.6% y/y in Jan, weaker than expectations of +4.2% y/y and the slowest pace of increase n 2 years.

USD/JPY (^USDJPY) today is up by +0.25%.  The yen today fell to a 2-week low against the dollar.  A rally in the Nikkei Stock Index today to a 3-week high reduced the safe-haven demand for the yen.  The yen also fell back after today’s economic news showed the Mar Tokyo CPI eased and the Japan Feb jobless rate unexpectedly rose; both are dovish for BOJ policy.  Lower T-note yields today are limiting losses in the yen. 

April gold (GCJ3) this morning is up +4.1 (+0.21%), and May silver (SIK23) is up +0.241 (+1.00%).  Precious metals prices this morning are moderately higher, with silver posting a 1-3/4 month high. Precious metals garnered support from today’s economic news that showed the U.S. Feb core PCE deflator, the Fed’s preferred inflation gauge, rose less than expected, raising hopes that Fed rate hikes may be close to ending.  Silver also rose after China’s manufacturing and service sector activity rose more than expected this month, which supports economic growth and industrial metals demand. In addition, fund buying of gold continues as gold holdings in exchange-traded funds (ETFs) rose to a 2-month high Thursday.  However, a stronger dollar today is bearish for metals.

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