Stocks Fluctuate as Inflation Eases to 5%

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is down -0.19%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.04%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.55%.

After rallying off the open, stocks are moderately lower after this morning's CPI report, despite hawkish comments from Richmond Fed President Barkin, who said, "There is still more to do to get core inflation down to where we'd like it to be."

U.S. Mar CPI rose +0.1% m/m and +5.0% y/y, a slightly smaller increase than expectations of +0.2% m/m and +5.1% y/y.  However, Mar CPI ex-food and energy rose to +5.6% y/y from +5.5% y/y in Feb, right on expectations.  The markets have now priced in a 70% chance of a 25 bp rate hike at the May 2-3 FOMC meeting.

Stocks are awaiting Q1 earnings reporting season, which kicks off Friday with earnings results from big U.S. banks, including Citigroup, JPMorgan Chase, and Wells Fargo. 

The weekly report from the Mortgage Bankers Association showed mortgage applications for home purchases climbed +7.8% w/w to a 2-month high.  Also, the U.S. 30-year fixed mortgage contract rate dropped -10 bp to a 2-month low of 6.3% in the week ended April 7, the fifth straight week the mortgage rate has declined.

An increase in M&A activity supports the overall market, with Triton International surging more than +32% after Brookfield Infrastructure acquired the company for $4.7 billion.  Also, National Instruments jumped more than +9% after Emerson Electric acquired the company for $8.2 billion.

On the negative side, airline stocks are under pressure after American Airlines Group dropped more than -9% when it reported preliminary Q1 adjusted EPS that was below consensus.  Also, regional bank stocks are falling after Warren Buffett said that more U.S. banks are likely to fail and that troubled bank stocks aren’t valued investments because shareholders will likely be wiped out even if the government moves to protect depositors.

Global bond yields are mixed.  The 10-year T-note yield is down -2.4 bp at 3.402%. The 10-year German bund yield is up +5.3 bp at 2.363%, and the 10-year UK gilt yield is up +1.8 bp at 3.560%.

Overseas stock markets are mixed.  The Euro Stoxx 50 is down -0.03%.  China’s Shanghai Composite closed up +0.41%, and Japan’s Nikkei Stock Index closed up +0.57%. 

Today’s stock movers…

Fortive Corp (FTV) is up more than +2% to lead gainers in the S&P 500 after it lost out to Emerson Electric in its bid to acquire National Instruments.

PayPal Holdings (PYPL) is up more than +2% after Visa said it would partner with PayPal and Veemo to pilot Visa+, a service to help users move money between different person-to-person digital payment apps. 

Dow (DOW) is up more than +2% to lead gainers in the Dow Jones Industrials.  Also, Eastman Chemical (EMN) and LyondellBasell Industries (LYB) are up more than +2% after Piper Sandler upgraded all three stocks to overweight from neutral.

Triton International (TRTN) is up more than +32% after Brookfield Infrastructure acquired the company for $4.7 billion. 

National Instruments (NATI) is up more than +9% after Emerson Electric acquired the company for $8.2 billion.

Becton Dickson (BDX) is up more than +1% after KeyBanc Capital Markets upgraded the stock to overweight from sector weight. 

Global Payments (GPN) is up nearly +1% after Goldman Sachs upgraded the stock to buy from neutral.

Airline stocks are falling today, led by an -8% drop in American Airlines Group (AAL) to lead losers in the S&P 500 after it reported preliminary Q1 adjusted EPS of 1 cent to 5 cents, the midpoint below the consensus of 4.6 cents.  Other airline stocks retreated as well, with United Airlines Holdings (UAL) down more than -6% and Southwest Airlines (LUV) and Delta Air Lines (DAL) down more than -3%.  Also, Alaska Air Group (ALK) is down more than -2%.

Regional bank stocks are under pressure today after Warren Buffett said that more U.S. banks are likely to fail and that troubled bank stocks aren’t value investments because shareholders are likely to be wiped out even if the government moves to protect depositors.  First Republic Bank (FRC) is down more than -3%.  Also, Synchrony Financial (SYF), Franklin Resources (BEN), Capital One Financial (COF), M&T Bank (MTB),  Northern Trust (NTRS), KeyCorp (KEY), and Zions Bancorp (ZION) are down more than -1%.

U.S.-listed Chinese technology stocks are falling today, with JD.com (JD) down more than -5% to lead losers in the Nasdaq 100 after Benchmark Company LLC cut its price target on the stock to $68 from $76, citing slower revenue growth and intensified competition.  PDD Holdings (PDD) is also down more than -5%, and Alibaba Group Holding (BABA) is down more than -4%.

Across the markets…

June 10-year T-notes (ZNM23) today are up +7 ticks, and the 10-year T-note yield is down -2.4 bp at 3.402%.  A friendly U.S. Mar CPI report today sparked a rally in T-note prices.  Hawkish comments from Richmond Fed President Barkin knocked T-note prices off their best levels when he said, "There is still more to do to get core inflation down to where we'd like it to be."  Also, supply pressures are weighing on T-notes as the Treasury will auction $32 billion of re-opened 10-year T-notes today as part of this week’s $90 billion auction package of T-notes and T-bonds.

The dollar index (DXY00) today is down by -0.60%.  The dollar is under pressure today from lower T-note yields. Also, today’s weaker-than-expected U.S. May CPI report boosts the prospects for the Fed to end its rate hiking campaign and is bearish for the dollar.

EUR/USD (^EURUSD) today is up by +0.56%.  The euro today rallied to a 2-1/4 month high against the dollar. Today’s weaker-than-expected U.S. Mar CPI report undercut the dollar to the benefit of the euro.  Gains in EUR/USD accelerated on hawkish comments from ECB Vice President Guindos, who said the Eurozone is likely to report positive growth in Q1 and that core inflation pressures in the Eurozone are "stickier" than anticipated. 

USD/JPY (^USDJPY) today is down by -0.38%.  The yen today recovered from a 3-1/2 week low and is moderately higher.  Lower T-note yields today are bullish for the yen.  Also, better-than-expected Japanese economic news today on Mar producer prices and Feb core machine orders supported the yen.

Japan Mar PPI eased to +7.2% y/y from +8.3% y/y in Feb, the slowest pace of increase in 1-1/2 years.

Japan Feb core machine orders fell -4.5% m/m, a smaller decline than expectations of -6.3% m/m.

June gold (GCM3) this morning is down -2.3 (-0.11%), and May silver (SIK23) is up +0.049 (+0.19%).  Precious metals prices this morning are mixed, with silver prices jumping to an 11-3/34 month high.  Dollar weakness today is bullish for metals prices.  Also, lower global bond yields today are supportive of precious metals. In addition, gold has support on strong demand from fund buying as gold holdings in exchange-traded funds (ETFs) rose to a 2-1/2 month high Tuesday.  Gold prices gave up their advance and turned lower after U.S. Mar core consumer prices accelerated, which may keep the Fed from ending its rake-hike campaign.   

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