Stocks See Support from Yellen Comments

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is up +0.14%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.08%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.33%.

Stocks this morning shook off early losses and are moderately higher.  Lower bond yields today are supporting gains in stocks.  Also, positive comments from U.S. Treasury Secretary Yellen boosted equities when she said she sees the U.S. on a “good path” to bringing down inflation without a major weakening in the labor market.

Stocks today were under early pressure from following losses in European and Chinese stocks on global economic concerns after China’s Q2 GDP grew less than expected.  China's Q2 GDP rose +6.3% y/y, weaker than expectations of +7.1% y/y.

Several investment banks lowered their forecasts for Chinese growth this year after China’s Q2 GDP disappointed.  Citigroup lowered its China 2023 GDP forecast to 5.0% from 5.5%, Morgan Stanley cut its China 2023 GDP forecast to 5.0% from 5.7%, and JPMorgan Chase lowered its China 2023 GDP estimate to 5.0% from 5.5%.

Today’s economic news showed the U.S. Jul Empire manufacturing survey of general business conditions index fell -5.5 to 1.1, stronger than expectations of -3.5.

The markets are discounting the odds at 92% for a +25 bp rate hike at the next FOMC meeting on July 25-26.  The markets are anticipating a peak funds rate of 5.42% by November, which is +34 bp higher than the current effective federal funds rate of 5.08%.

Global bond yields are lower.  The 10-year T-note yield is down -0.4 bp at 3.828%.  The 10-year German bund yield fell to a 1-1/2 week low of 2.444% and is down -2.3 bp at 2.489%.  The 10-year UK Gilt yield is down -0.3 bp at 4.440%. 

Overseas stock markets are lower.  The Euro Stoxx 50 is down -0.95%.  China’s Shanghai Composite Index today closed down -0.87%.  Japan’s Nikkei Stock Index was closed for the Marine Day holiday.

Today’s stock movers…

Arch Capital Group Ltd (ACGL) is up more than +4% to lead gainers in the S&P 500 after Wells Fargo raised its price target on the stock to $90 from $83.

Activision Blizzard (ATVI) is up more than +3% after a U.S. appeals court denied the FTC’s bid to pause Microsoft’s $69 billion takeover of the company.

Tesla (TSLA) is up more than +2% after it built its first electric truck and after China’s BYD Co reported a three-fold increase in first-half net profit, a positive development for electric vehicle sales. 

Progressive Corp (PGR) is up more than +2% after JPMorgan Chase upgraded the stock to overweight from neutral with a price target of $146.

Chipotle Mexican Grill (CMG) is up more than +2% after Oppenheimer raised its price target on the stock to $2,350 from $2,050.

Intel (INTC) is up more than +1% to lead gainers in the Dow Jones Industrials after Melius Research LLC initiated coverage on the stock with a buy rating.

Datadog (DDOG) is up more than +3% to lead gainers in the Nasdaq 100 after Oppenheimer raised its price target on the stock to $120 from $85. 

Ford Motor (F) is down more than -4% to lead losers in the S&P 500 after it slashed prices on its F-150 electric truck by as much as 17% to fend off competition from Tesla and General Motors.

AT&T (T) is down more than -4% to a 29-year low after Citigroup downgraded the stock to neutral from buy.

Paramount Global (PARA) is down more than -3% after the Mission Impossible Movie-Dead Reckoning Part One earned only $56.2 million in theaters this past weekend, well below projections of $68 million. 

State Street (STT) is down more than -2% after JPMorgan Chase downgraded the stock to underweight from neutral.

PepsiCo (PEP) and Conagra (CAG) are down more than -1% after Morgan Stanley downgraded the stocks to equal weight from overweight.

Across the markets…

September 10-year T-notes (ZNU23) today are up +2 ticks, and the 10-year T-note yield is down -0.4 bp at 3.828%.  T-notes today are slightly higher and have carryover support from a rally in 10-year German bunds to a 1-1/2 week high. T-notes fell back from their best levels on this morning’s stronger-than-expected July Empire manufacturing report. 

The dollar index (DXY00) today is up by +0.20%.  Weakness in the yuan is positive for the dollar on Chinese economic concerns after today’s weaker-than-expected Chinese Q2 GDP and June retail sales reports.  Also, weakness in the euro is supportive for the dollar after the Bundesbank said in its monthly report today that Germany’s economic recovery this year may be slower than expected.  Today’s stronger-than-expected U.S. July Empire manufacturing survey of general business conditions report was bullish for the dollar.

EUR/USD (^EURUSD) today is down by -0.13%.  The euro today fell back from a 16-1/2 month high and is moderately lower.  EUR/USD gave up its gains after the Bundesbank warned that the economic recovery in Germany this year may be weaker than earlier expected.  Also, a decline in the 10-year German 10-year bund yield today to a 1-1/2 week low weakened the euro’s interest rate differentials and undercut the euro.

USD/JPY (^USDJPY) is up +0.36%.  The yen today is moderately lower on speculation the BOJ may refrain from ending its stimulus measures or changing its yield-curve control policy at its meeting late this month after BOJ Governor Ueda said not much has changed on bond market functionality from the BOJ’s last policy meeting in June. Trading in the yen is subdued today with markets closed in Japan for the Marine Day holiday. 

August gold (GCQ3) today is down -12.5 (-0.64%), and Sep silver (SIU23) is down -0.229 (-0.91%).  Precious metals prices this morning are moderately lower.  A stronger dollar today has sparked long liquidation in metals. Silver prices are also under pressure on concerns that Chinese demand for industrial metals will weaken after China's Q2 GDP grew less than expected.  Lower global bond yields today are limiting losses in precious metals. 

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