Stocks Lower as Bond Yields Rise

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is down -0.13%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.19%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.39%.

Stocks this morning are lower, with the Nasdaq-100 falling to a 7-week low.  Weekly jobless claims fell more than expected and the Aug Philadelphia Fed business outlook survey rose to a 16-month high.  

Rising bond yields are weighing on technology stocks and are dragging the Nasdaq 100 lower after the 10-year T-note yield today rose to a 9-3/4 month high.

The Shanghai Stock Index rebounded from a 7-1/2 month low when the Zhongzhi Enterprise Group said it plans to restructure debt and sell assets after the review in order to repay investors.  This week, Chinese stocks have been under pressure as liquidity concerns in China’s shadow banking system intensified after Zhongrong International Trust, a unit of Zhongzhi Enterprise Group, missed payments on dozens of its investment products. 

U.S. weekly initial unemployment claims fell -9,000 to 239,000, showing a slightly stronger labor market than expectations of 240,000.

The U.S. Aug Philadelphia Fed business outlook survey rose +25.5 to a 16-month high of 12.0, stronger than expectations of -10.4.

U.S. Jul leading indicators fell -0.4% m/m, right on expectations.

The markets are discounting the odds at 12% for a +25 bp rate hike at the September 20 FOMC meeting and 43% for that +25 bp rate hike at the November 1 FOMC meeting. 

Global bond yields are higher.  The 10-year T-note yield rose to a 9-3/4 month high of 4.310% and is up +5.3 bp to 4.304%.  The 10-year German bund yield is up +4.2 bp at 2.692%.  The 10-year UK gilt yield jumped to a 14-year high of 4.747% and is up +7.3 bp at 4.7190%.  

Overseas stock markets are mixed.  The Euro Stoxx 50 is down -1.13%.  China’s Shanghai Composite Index today closed up +0.43%.  Japan’s Nikkei Stock Index closed down -0.44%.

Today’s stock movers…

Cisco Systems (CSCO) is up more than +4% to lead gainers in the S&P 500, Dow Jones Industrials, and Nasdaq 100 after reporting Q4 revenue of $15.20 billion, better than the consensus of $15.05 billion, and forecasting Q1 revenue of $14.50 billion-$14.70 billion, the midpoint above the consensus of $14.57 billion. 

Ball Corp (BALL) is up more than +3% after BAE Systems agreed to buy Ball’s aerospace division for around $5.6 billion. 

Energy stocks and energy service providers are climbing today, with the price of WTI crude up more than +1%.  As a result, Exxon Mobil (XOM), ConocoPhillips (COP), Marathon Oil (MRO), Valero Energy (VLO), Devon Energy (DVN), Occidental Petroleum (OXY), and Marathon Petroleum (MPC) are up more than +2%.

Chesapeake Energy (CHK) is up more than +5% after S&P Dow Jones Indices said the company would replace Mercury Systems in the S&P MidCap 400 before the opening of trading on Aug 21. 

U.S.-listed Chinese stocks are moving higher today after the Shanghai Composite recovered from a 7-1/2 month low and closed higher.  As a result, PDD Holdings (PDD), JD.com (JD), Alibaba Group Holding (BABA), NetEase (NTES), and Baidu (BIDU) are up +1% or more. 

Health insurance stocks are falling today after Blue Shield of California said it plans to drop CVS Health’s Caremark as its primary pharmacy benefit manager.  As a result, CVS Health (CVS) is down more than -9% to lead losers in the S&P 500.  Also, Cigna Group (CI) is down more than -6% and Cardinal Health (CAH) is down more than -3%.  In addition, Walgreens Boots Alliance (WBA), McKesson (MCK), Centene (CNC),and Molina Healthcare (MOH) are down more than -2%.

Intel (INTC) is down more than -3% to lead losers in the Dow Jones Industrials and Nasdaq 100 on concern its failed deal to acquire Tower Semiconductor will hurt its foundry efforts. 

Paramount Global (PARA) is down more than -3% after the Wall Street Journal reported that the company had dropped plans to sell a majority stake in its BET Media Group.

Airline stocks are under pressure today after Goldman Sachs lowered price targets across the sector due to marking-to-market for higher jet fuel prices.  As a result, American Airlines Group (AAL) and Alaska Air Group (ALK) are down more than -2%.  Also, United Airlines Holdings (UAL), Delta Air Lines (DAL), and Southwest Airlines (LUV) are down more than -1%. 

Hawaiian Electric Industries (HE) is down more than -20% amid concerns over the company’s potential liabilities following the Maui wildfires.

Wolfspeed Inc (WOLF) is down more than -17% after reporting a Q4 adjusted loss per share of -42 cents, steeper than the consensus of -20 cents, and forecasting a Q1 adjusted loss per share of -60 cents to -75 cents, much weaker than the consensus of -30 cents. 

Across the markets…

September 10-year T-notes (ZNU23) today are down -7 ticks, and the 10-year T-note yield is up +5.3 bp at 4.304%.  Sep T-notes today dropped to a 10-month nearest-futures low, and the 10-year T-note yield climbed to a 9-3/4 month high of 4.310%. T-notes have negative carryover from a plunge in 10-year UK gilts today to a 14-year low.  Also, today’s stronger-than-expected U.S. economic news on weekly jobless claims and the Aug Philadelphia Fed business outlook survey were hawkish for Fed policy and bearish for T-notes. 

The dollar index (DXY00) today is down by -0.27%.  The dollar today retreated from a 2-month high and is moderately lower. Strength in stocks today has reduced the liquidity demand for the dollar.  Also, a recovery in the yuan today weighed on the dollar after the yuan rebounded from a 9-1/2 month low against the dollar and moved higher on a report that said Chinese authorities told state-owned banks to step up intervention in the currency market this week to support the yuan and that government officials are considering the use of tools such as cutting banks’ foreign-exchange reserve requirements to prevent a rapid depreciation in the yuan. 

EUR/USD (^EURUSD) today is up by +0.21%.  The euro today recovered from a 6-week low and is moderately higher as weakness in the dollar sparked short covering in EUR/USD.  The euro today initially moved lower on dovish comments from ECB Governing Council member Kazaks who said he was undecided on an ECB rate hike in September.

ECB Governing Council member Kazaks said he was undecided on an ECB rate hike in September and said, "If we look at the coming months, if there'll be increases in interest rates, then they'll be really very small."

USD/JPY (^USDJPY) is down by -0.29%.  The yen today recovered from a 9-1/4 month low against the dollar and moved higher after the 10-year JGB bond yield rose to a 2-week high, strengthening the yen’s interest rate differentials.  A slump in the Nikkei Stock Index to a 2-1/2 month low today also boosted safe-haven demand for the yen.  Weaker-than-expected Japanese economic news today initially put pressure on the yen.

The Japan Jun tertiary industry index fell -0.4% m/m, weaker than expectations of -0.2% m/m.

Japan Jul exports fell -0.3% y/y, weaker than expectations of -0.2% y/y and the biggest decline in over two years.  Also, Jul imports fell -13.5% y/y, the biggest decline in 2-3/4 years.

Japan Jun core machine orders rose +2.7% m/m, weaker than expectations of +3.5% m/m.

October gold (GCV3) today is down -2.0 (-0.10%), and Sep silver (SIU23) is up +0.240 (+1.07%). Precious metals prices this morning are mixed, with gold falling to a 5-month low.  Higher global bond yields today are weighing on precious metals prices. Also, fund liquidation in gold continues after long gold holdings in ETFs fell to a 3-1/3 year low on Tuesday.   Losses in gold are limited due to a weaker dollar.  Silver price also found support on today’s stronger-than-expected U.S. economic news on weekly jobless claims and the Aug Philadelphia Fed business outlook survey, which is positive for economic growth prospects and industrial metals demand.

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