Stocks Mixed as Bond Yields Climb

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is up +0.11%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.46%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.65%.

Stocks this morning are mixed.  An increase in M&A activity is supporting stocks after Permian Resources acquired Earthstone Energy in a deal valued at $4.5 billion.  Also, cybersecurity stocks are climbing today after Palo Alto Networks forecast stronger-than-expected full-year billings. Johnson & Johnson is down more than -3% today to weigh on the Dow Jones Industrials.  Also, stocks fell back from their best levels after the 10-year T-note yield rose to a 15-year high.

Global equity markets have some negative carryover from a fall in China’s Shanghai Composite Stock Index to a 7-1/2 month low today on economic concerns after Chinese banks cut their prime loan rates less than expected.

In consultation with state-owned commercial banks, the People's Bank of China (PBOC) cut the 1-year loan prime rate by -10 bp to 3.45%, a smaller cut than expectations of -15 bp to 3.40%.  Also, the 5-year loan prime rate was left unchanged at 4.20% versus expectations for a -15 bp cut to 4.05%.

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

Global bond yields are higher.  The 10-year T-note yield jumped to a 15-year high of 4.348% and is up +8.7 bp at 4.432%.  The 10-year German bund yield is up +8.5 bp at 2.707%.  The 10-year UK gilt yield is up +4.9 bp at 4.724%. 

Overseas stock markets are mixed.  The Euro Stoxx 50 is up +0.32%.  China’s Shanghai Composite Index today closed down -1.24%.  Japan’s Nikkei Stock Index closed up +0.37%.

Today’s stock movers…

Cybersecurity stocks are moving higher today after Palo Alto Networks forecast 2024 billing of $10.9 billion-$11.0 billion, stronger than the consensus of $10.77 billion.  As a result, Palo Alto Networks (PANW) is up more than +14% to lead gainers in the S&P 500 and Nasdaq 100.  Also, CrowdStrike Holdings (CRWD), SentinelOne (S), and Zscaler (ZS) are up more than +4%, and Fortinet (FTNT) is up more than +1%.

Moderna (MRNA) is up more than +6% after a weekend article in Barron’s said the company’s big cash position and recent decline make it an appealing buy. 

Nvidia (NVDA) is up more than +4% after KeyBanc Capital Markets raised its price target on the stock to $620 from $550.

Earthstone Energy (ESTE) is up more than +15% in pre-market trading after Permian Resources acquired the company in a deal valued at $4.5 billion. 

Sculptor Capital Management (SCU) is up more than +3% after it said 70 potential buyers had contacted its advisers after it disclosed that it was pursuing strategic options.

VMware (VMW) is up more than +4% after Broadcom said it expects its acquisition of the company will close Oct 30 after the UK CMA gave its final transaction approval.

Johnson & Johnson (JNJ) is down more than -3% to lead losers in the S&P 500 and the Dow Jones Industrials after it said it plans to accept only 23.8% of its shares swapped for Kenvue stock, below consensus for 25% to 30% of stock exchanged.  J&J split its consumer healthcare business named Kenvue into a new publicly traded company.

Estee Lauder (EL) is down more than -3% after Evercore ISI cut its price target on the stock to $200 from $250. 

Insulet (PODD) is down more than -2% after Baird downgraded the stock to neutral from outperform and cut its price target on the stock to $219 from $320.

Napco Security Technologies (NSSC) is down more than -41% after it said it would have to restate three quarters of financial statements. 

Deere & Co (DE) is down more than -2% after Stifel cut its price target on the stock to $460 from $493. 

Across the markets…

September 10-year T-notes (ZNU23) today are down -18 ticks, and the 10-year T-note yield is up +8.7 bp at 4.342%.  Sep T-notes today dropped to a 10-month nearest-futures low, and the 10-year T-note yield today rose to a 15-year high of 4.348%. Higher European government bond yields today are pressuring T-note prices.  Also, strength in stocks today has curbed the safe-haven demand for T-notes. In addition, speculation that Fed Chair Powell will remain hawkish when he speaks Friday at the Fed’s annual symposium in Jackson Hole, Wyoming, is weighing on T-note prices.

The dollar index (DXY00) today is little changed, up by +0.04%.  The dollar today recovered from overnight losses and is slightly higher as T-note yields climb, strengthening the dollar’s interest rate differentials.  Today’s rally in stocks is negative for the dollar as it reduces liquidity demand for the dollar. 

EUR/USD (^EURUSD) today is up by +0.11%.  Dollar weakness today is supportive of the euro.  Also, higher European government bond yields today are bullish for EUR/USD.  Gains in the euro are limited after today’s monthly report from the Bundesbank said the German economy “continues to be in a weak phase.”  Also, today’s news that showed German producer prices in July fell by the most in 13 years is dovish for ECB policy and bearish for the euro. 

In its monthly report, Germany's Bundesbank said, "The German economy continues to be in a weak phase. In the third quarter of 2023, economic output is likely to remain virtually unchanged again."

German Jul PPI fell -6.0% y/y, weaker than expectations of -5.1% y/y and the steepest drop in 13 years.

USD/JPY (^USDJPY) is up by +0.54%.  Higher T-note yields today are weighing on the yen.  Also, today’s rally in the Nikkei Stock Index reduced the safe-haven demand for the yen.  In addition, the yen is also falling as Bloomberg data shows the BOJ is purchasing Japanese bonds at a record pace this year as it tries to keep long-term bond yields low in its yield curve control program. 

October gold (GCV3) today is up +2.3 (+0.12%), and Sep silver (SIU23) is up +0.327 (+1.44%). Precious metals prices this morning are moderately higher, with silver climbing to a 2-week high.  Today’s news that German producer prices in July fell by the most in 13 years was dovish for ECB policy and bullish for precious metals. Metals also found support from the Bundesbank’s monthly report today that said, "The German economy continues to be in a weak phase,” which may prompt the ECB to slow or stop raising interest rates.  Today's stronger dollar and higher global bond yields are negative for metals prices. Also, ongoing fund liquidation in gold is bearish for gold prices after long gold holdings in ETFs fell to a 3-1/3 year low last Friday.

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