Stocks Mixed as Markets Await Minutes of the July FOMC Meeting

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is down -0.17%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.03%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.46%.

Stocks this morning are mixed.  Lower T-note yields and a decline in inflation expectations support stocks today.  The 10-year U.S. breakeven inflation rate fell to a 3-1/2 week low today at 2.308%. The markets are awaiting this afternoon’s release of the minutes of the July 25-26 FOMC meeting for clues as to the future direction of Fed policy.  This morning’s U.S. economic news was mixed as July housing starts and Jul manufacturing production rose more than expected, but July building permits rose less than expected.

China’s economic woes continue to weigh on global markets. The yuan fell to a 9-1/4 month low today, and the Shanghai Composite closed down -0.82% after China’s July home sales fell for the second month by the most in 7 months.  Also, liquidity concerns in China’s shadow banking system have intensified after Zhongrong International Trust missed payments on dozens of its investment products. 

JPMorgan Chase cut its China 2023 GDP forecast to 4.8% from a 6.4% estimate in May.  Barclays cut its China 2023 GDP forecast to 4.5% from a prior forecast of 4.9%.

Zhongrong International Trust, China's ninth-biggest trust with about 600 billion yuan in assets, missed payments on 30 investment products and halted redemptions on some short-term instruments.  The firm said liquidity has dried up "unexpectedly," making it hard to meet short-term debt obligations as most of the underlying assets are long-term and illiquid.  The firm has 270 high-yield products totaling 39.5 billion yuan ($5.4 billion) due this year.

Weekly data from the Mortgage Bankers Association showed mortgage applications fell -0.8% w/w, the fifth straight week of declines.  The U.S. 30-year mortgage rate rose to 7.16% last week, matching the highest since 2001.

U.S. Jul housing starts rose +3.9% m/m to 1.452 million, stronger than expectations of 1.450 million.  However, Jul building permits, a proxy for future construction, rose +0.1% m/m to 1.442 million, weaker than expectations of 1.463 million.

U.S. Jul manufacturing production unexpectedly rose +0.5% m/m, stronger than expectations of no change.

The markets are discounting the odds at 11% for a +25 bp rate hike at the September 20 FOMC meeting and 38% for that +25 bp rate hike at the November 1 FOMC meeting. 

Global bond yields are mixed.  The 10-year T-note yield is down -1.0 bp to 4.201%.  The 10-year German bund yield is down -2.6 bp at 2.646%.  The 10-year UK gilt yield is up +4.2 bp at 4.631%.  

Overseas stock markets are lower.  The Euro Stoxx 50 is down -0.03%.  China’s Shanghai Composite Index today closed down -0.82%.  Japan’s Nikkei Stock Index closed down -1.46%.

Today’s stock movers…

Progressive Corp (PGR) is up more than +8% to lead gainers in the S&P 500 after reporting net premiums written for July rose +21% y/y to $5.95 billion.   

Target (TGT) is up more than +4% after reporting Q2 Ebitda of $1.90 billion, better than the consensus of $1.58 billion.

TJX Cos (TJX) is up more than +3% after reporting Q2 net sales of $12.80 billion, stronger than the consensus of $12.44 billion, and raising its full-year comparable sales estimate to +3% to +4% from a prior view of +2% to +3%, better than the consensus of +3.01%. 

H&R Block (HRB) is up more than +7% after reporting Q4 adjusted EPS from continuing operations of $2.05, better than the consensus of $1.88. 

MarketAxcess Holdings (MKTX) is up more than +3% on signs of insider buying after an SEC filing showed CEO Concannon purchased $1.02 million of shares on Monday.

Coinbase Global (COIN) is up more than +2% after it won approval from the National Futures Association to operate as a Futures Commission Merchant and offer access to crypto futures.

Keurig Dr Pepper (KDP) is up more than +1% after UBS upgraded the stock to buy from neutral with a price target of $42.

GE Healthcare (GEHC) is up more than +1% after Wells Fargo Securities initiated coverage of the stock with a recommendation of overweight and a price target of $90. 

MarketAxcess Holdings (MKTX) is up more than +3% on signs of insider buying after an SEC filing showed CEO Concannon purchased $1.02 million of shares on Monday.

Jack Henry & Associates (JKHY) is down more than -7% to lead losers in the S&P 500 after forecasting 2024 EPS of $4.92-$4.99, weaker than the consensus of $5.34.

Trucking stocks are under pressure on signs of weakness in freight demand after data from the Cass Freight Shipment Index showed U.S. July freight volume fell -8.9% y/y, the sixth consecutive monthly decline. As a result, JB Hunt Transport Services (JBHT) is down more than -2%.  Also, Knight-Swift Transportation Holdings (KNX) and Werner Enterprises (WERN) are down more than -1%.  In addition, Schneider National (SNDR) and CH Robinson Worldwide (CHRW) are down more than -0.5%.

Agilent Technologies (A) is down more than -3% after cutting its full-year revenue forecast to $6.80 billion-$6.85 billion from a previous forecast of $6.93 billion-$7.03 billion.

Intel (INTC) is down more than -1% to lead losers in the Down Jones Industrial after it agreed to terminate its previously disclosed agreement to buy Tower Semiconductor for $5.4 billion. 

Coherent (COHR) is down more than -34% after forecasting 2024 revenue of $4.5 billion-$4.7 billion, weaker than the consensus of $4.88 billion. 

Tesla (TSLA) is down more than -1% after it cut its vehicle prices in China for the second time in three days. 

Across the markets…

September 10-year T-notes (ZNU23) today are up +5 ticks, and the 10-year T-note yield is down -1.0 bp at 4.201%.  Sep T-notes today are slightly higher on a decline in inflation expectations after the 10-year breakeven inflation rate fell to a 3-1/2 week low today at 2.308%.  Gains in T-notes are limited due to today’s stronger-than-expected economic news on July housing starts and Jul manufacturing production.

The dollar index (DXY00) today is down by -0.06%.  The dollar today is slightly weaker, weighed down by lower T-note yields.  Also, today’s stronger-than-expected report on Jun Eurozone industrial production boosted the euro against the dollar.  Losses in the dollar were contained on weakness in the yuan, which dropped to a 9-1/4 month low against the dollar on Chinese economic concerns.

EUR/USD (^EURUSD) today is up by +0.16%.  The euro is moderately higher today on a weaker dollar.  Also, today’s stronger-than-expected report on Eurozone Jun industrial production gave the euro a boost.

Eurozone Jun industrial production unexpectedly rose +0.5% m/m, stronger than expectations of no change.

USD/JPY (^USDJPY) is up by +0.16%.  The yen today is moving lower for the eighth consecutive session and posted a new 9-month against the dollar.   Central bank divergence is weighing on the yen, with the BOE, ECB, and Fed in the middle of their rate hiking cycles while the BOJ maintains QE and record-low interest rates. Lower T-note yields today are limiting losses in the yen.

October gold (GCV3) today is up +1.8 (+0.09%), and Sep silver (SIU23) is up +0.064 (+0.28%). Precious metals prices this morning are slightly higher.  A weaker dollar today is giving metals prices a boost.  Also, T-note yields are supportive of precious metals.  In addition, the deepening liquidity crisis in China has boosted safe-haven demand for precious metals after Zhongrong International Trust missed payments on dozens of its investment products.  Silver prices are finding support on signs of strength in industrial metals demand after today’s news showed Eurozone Jun industrial production and U.S. Jul manufacturing production rose more than expected. 

Gains in silver were limited after JPMorgan Chase and Barclays cut their China 2023 GDP estimates, a bearish factor for industrial metals demand.  Also, fund liquidation in gold continues after long gold holdings in ETFs fell to a 3-1/3 year low on Tuesday.

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