Broader Market Climbs as Bond Yields Fall on U.S. ISM Manufacturing Miss

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is up +0.21%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.87%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.48%.

U.S. stock indexes this morning are mixed, with the S&P 500 and Dow Jones Industrials climbing to 6-week highs.

U.S. stock index futures this morning are mixed, with the broader market trading higher after bond yields tumbled when today’s economic news showed that U.S. manufacturing activity contracted more than expected at the steepest pace in 2-3/4  years. A more than -4% decline in Tesla today is leading technology stocks and the Nasdaq 100 lower.

Strength in energy stocks today is a bullish factor for the overall market, with May WTI crude oil up more than +6% at a 2-1/4 month high after OPEC+ on Sunday announced a surprise oil production cut of more than 1 million bpd starting May 1.  Saudi Arabia said the cuts were a "precautionary measure aimed at supporting the stability of the oil market."

Morgan Stanley warns that this year's rally in technology stocks isn't sustainable and that the sector will return to new lows. Also, JPMorgan Chase said the technology sector would stop strongly outperforming due to earnings risks, unattractive valuations, and very high price relatives in the long-term context.

The U.S. Mar ISM manufacturing index fell -1.4 to 46.3, weaker than expectations of 47.5 and the steepest pace of contraction in 2-3/4 years.

U.S. Feb construction spending unexpectedly fell -0.1% m/m, weaker than expectations of no change.

Global bond yields this morning gave up overnight gains and turned lower after the U.S. ISM Mar manufacturing index disappointed. The 10-year T-note yield is down -4.9 bp at 3.419%.  The 10-year German bund yield is down -4.1 bp at 2.251%.  The 10-year UK gilt yield is down -7.2 bp to 3.418%. 

Overseas stock markets are higher.  The Euro Stoxx 50 today is up +0.11%.  China’s Shanghai Composite stock index closed up +0.72%, and Japan’s Nikkei Stock Index closed up +0.52%. 

Today’s stock movers…

Energy stocks and energy service providers are rallying sharply today as the price of crude soared more than +6% to a 2-1/4 month high after OPEC+ announced it would cut its oil production by 1 million bpd.  Marathon Oil (MRO) is up more than +9% to lead gainers in the S&P 500, Diamondback Energy (FANG) is up more than +6% to lead gainers in the Nasdaq 100, and Chevron (CVX) is up more than +4% to lead gainers in the Dow Jones Industrials.  Also, Halliburton (HAL) is up more than +9%, and Schlumberger (SLB) and ConocoPhillips (COP) are up more than +8%.  In addition, Devon Energy (DVN) and Occidental Petroleum (OXY) are up more than +6%, and Exxon Mobil (XOM) is up more than +5%.

Health insurance stocks are climbing today after the Centers for Medicare and Medicaid Services (CMS’s) final 2024 Medicare Advantage and Part D rate update shows the plan’s revenue will increase by 3.32% in 2024, above the consensus of 2.02%.  As a result, UnitedHealth Group (UNH) and Humana (HUM) are up more than +3%.  Also, Elevance Health (EV), Cigna Group (CI), CVS Health Corp (CVS), and Centene (CNC) are up more than +2%.

Extra Space Storage (EXR) is down more than -6% to lead losers in the S&P 500 after the company purchased Life Storage for $12.4 billion. 

Tesla (TSLA) is down more than -5% to lead losers in the Nasdaq 100 after reporting Q1 vehicle deliveries of 422,875, just above the consensus of 421,164, disappointing some analysts who had been expecting a bigger beat, especially after the company cut vehicle prices in January.

Catalent (CTLT) is down more than -3% after Barclays downgraded the stock to equal weight from overweight.

Micron Technology (MU) is down more than -3%, adding to last Friday’s -4% slide after China launched a cybersecurity review of imports from the company.

Automatic Data Processing (ADP) is down more than -2% after Bank of America Global Research downgraded the stock to underperform from neutral.

Across the markets…

June 10-year T-notes (ZNM23) today are up +19 ticks, and the 10-year T-note yield is down -4.9 bp at 3.419%.  June T-notes this morning recovered from overnight losses and moved higher after the U.S. ISM manufacturing index fell more than expected.  T-notes this morning initially posted moderate losses after a surge in crude prices increased inflation expectations and pushed the 10-year breakeven inflation rate up to a 3-1/2 week high. 

The dollar index (DXY00) today is down by -0.35%.  The dollar today is moderately lower on weaker-than-expected U.S. economic news on Mar ISM manufacturing and Feb construction spending. Also, lower T-note yields today have weakened the dollar’s interest rate differentials.

EUR/USD (^EURUSD) today is up by +0.55%.  The euro today recovered from overnight losses and is moderately higher as a weaker dollar sparked short covering in EUR/USD.   Also, today’s Eurozone economic news boosted the euro after the Eurozone Mar S&P manufacturing PMI was revised upward.  In addition, hawkish comments today from ECB Vice President Guindos supported the euro when he said  underlying inflation dynamics in the Eurozone “will remain strong."

ECB Vice President Guindos said, "we believe headline inflation is likely to decline considerably this year while underlying inflation dynamics will remain strong."

The Eurozone Mar S&P manufacturing PMI was revised upward by +0.2 to 47.3 from the initially reported 47.1.

USD/JPY (^USDJPY) today is down by -0.39%.  The yen today recovered from fell a 2-week low against the dollar and is moderately high.  A decline in T-note yields today is bullish for the yen.  Also, an upward revision to the Japan Mar Jibun Bank manufacturing PMI to a 5-month high supported the yen.  The yen today initially moved lower after the Japan Q1 Tankan large manufacturing business conditions fell more than expected to a 2-year low. 

June gold (GCM3) this morning is up +15.9 (+0.80%), and May silver (SIK23) is up +0.054 (+0.22%).  Precious metals prices this morning are moderately higher.  Dollar weakness today is supporting moderate gains in metals.  Also, a decline in global bond yields today is bullish for metals prices.  In addition, a surge in crude prices today to a 2-1/4 month high boosted demand for gold as a hedge against inflation.  Silver prices fell back from their best levels after today’s economic news showed manufacturing activity in the U.S. and China slowed more than expected last month. 

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