Stocks Jump as Weak U.S Economic News Bolsters the Outlook for a Fed Pause

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is up +0.73%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.24%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +1.42%.

Stocks this morning are moving higher, with the S&P 500 and Nasdaq 100 stock indexes posting 2-week highs and the Dow Jones Industrials posting a 1-1/2 week high.  Stocks rallied after weaker-than-expected U.S. economic news today on July JOLTS job openings and August consumer confidence knocked bond yields lower and bolstered the outlook for the Fed to pause its rate hike campaign.

A rally in the Shanghai Composite by more than +1% today is also providing some carryover support to global bourses on signs that will boost stimulus measures to bolster confidence in its markets.  Bloomberg reported that China is poised to cut interest rates on trillions of yuan of outstanding home mortgages for the first time since the global financial crisis.  Also, Bloomberg reported that Chinese state-owned banks will soon cut deposit rates for the third time in a year to boost their margins.

The U.S. Jun S&P CoreLogic composite-20 home price index rose +0.92% m/m and fell -1.17% y/y, stronger than expectations of +0.80% m/m and -1.60% y/y.

The U.S. Jul JOLTS job openings fell -338,000 to a nearly 2-1/2 year low of 8.827 million, weaker than expectations of 9.500 million.

The Conference Board U.S. Aug consumer confidence index fell -7.9 to 106.1, weaker than expectations of 116.0.

The markets are discounting the odds at 17% for a +25 bp rate hike at the September 20 FOMC meeting and 53% for that +25 bp rate hike at the November 1 FOMC meeting. 

Global bond yields are lower.  The 10-year T-note yield fell to a 2-week low of 4.132% and is down -5.7 bp at 4.145%.  The 10-year German bund yield is down -4.7 bp at 2.517%.  The 10-year UK gilt yield is down -0.8 bp to 4.433%.  

Overseas stock markets are higher.  The Euro Stoxx 50 is up +0.14%.  China’s Shanghai Composite Index closed up +1.20%.  Japan’s Nikkei Stock Index closed up +0.18%.

Today’s stock movers…

Catalent (CTLT) is up more than +6% to lead gainers in the S&P 500 after it said its board had established a committee to review its business, strategy and capital-allocation priorities to maximize long-term value. 

Verizon Communications (VZ) is up more than +2% to lead gainers in the Dow Jones Industrials after Citigroup upgraded the stock to buy from neutral.   

PDD Holdings (PDD) is up more than +18% to lead gainers in the Nasdaq 100 after reporting Q2 revenue of 52.28 billion yuan, well above the consensus of 43.28 billion yuan.   

Best Buy (BBY) is up more than +5% after it said a sales slump in consumer electronics and household appliances is starting to show signs of easing. 

Alphabet (GOOGL) is up more than +2% after it said more than half of venture-backed generative AI startups pay for its cloud computing platform.

AT&T (T) is up more than +3% after Citigroup upgraded the stocks to buy from neutral with a price target of $17.

JM Smucker (SJM) is up more than +1% after reporting Q1 adjusted EPS of $2.21, better than the consensus of $2.04, and raising its 2024 adjusted EPS forecast to $9.45-$9.85 from a prior view of $9.20-$9.60, stronger than the consensus of $9.44.

Oracle (ORCL) is up more than +1% after UBS upgraded the stock to buy from neutral with a price target of $140. 

Paccar (PCAR) is down more than -3% today to lead losers in the S&P 500 after a FreightWaves report said results from major trucking lender Bank of Montreal showed a deterioration in the credit rating of its trucking customers.  Cummins (CMI) is also down more than -2% on the news.

Salesforce (CRM) is down more than -1% to lead losers in the Dow Jones Industrials on signs of insider selling after an SEC filing showed CEO Benioff sold $3.13 million of shares last Friday.

Heico (HEI) is down more than -4% after reporting Q3 Ebitda of $179.8 million, below the consensus of $181.2 million. 

Shoe Carnival (SCVL) is down more than -2% after reporting Q2 net sales of $294.6 million, down -5.7% y/y, and cutting its 2024 set sales forecast to $1.19 billion-$1.21 billion from a prior view of $1.23 billion-$1.25 billion, weaker than the consensus of $1.23 billion. 

Celanese (CE) is down nearly -1% after Piper Sandler downgraded the stock to underweight from neutral.

Across the markets…

September 10-year T-notes (ZNU23) today are up +16 ticks, and the 10-year T-note yield is down -5.7 bp at 4.145%.  Sep T-notes today rallied to a 2-week high, and the 10-year T-note yield dropped to a 2-week low of 4.132%. Weaker-than-expected U.S. economic news today on Jul JOLTS job openings and Aug consumer confidence are dovish for Fed policy and sparked a rally in T-notes.  Also, easing inflation expectations is bullish for T-notes after the 10-year breakeven inflation rate today declined to a 5-week low of 2.274%. Limiting gains in T-note prices are supply pressures as the Treasury today will auction $36 billion of 7-year T-notes as part of this week’s $127 billion auction package of T-notes.

The dollar index (DXY00) today is down by -0.20%.  The dollar today erased overnight gains and turned lower after weaker-than-expected U.S. economic news today on Jul JOLTS job openings and Aug consumer confidence may prompt the Fed to pause its rat-hiking campaign.  A decline in T-note yields today is also undercutting the dollar.  In addition, a rally in stocks has reduced liquidity demand for the dollar.

EUR/USD (^EURUSD) today is up by +0.27%.  The euro today recovered from early losses and moved higher as weakness in the dollar sparked short covering in the euro.  EUR/USD today initially moved lower after a gauge of German consumer confidence fell to a 4-month low. 

The German Sep GfK consumer confidence index fell -0.9 to a 4-month low of -25.5, weaker than expectations of -24.5.

USD/JPY (^USDJPY) is down by -0.15%.  The yen today recovered from a 9-1/2 month low against the dollar and moved higher after T-note yields tumbled, which sparked short covering in the yen.  The yen initially dropped to a 9-1/2 month low after today’s economic news showed the Japan Jul jobless rate unexpectedly rose to a 4-month high, which is dovish for BOJ policy.

The Japan Jul jobless rate rose +0.2 to a 4-month high of 2.7%, showing a weaker labor market than expectations of no change at 2.5%.

October gold (GCV3) today is up +15.1 (+0.78%), and Sep silver (SIU23) is up +0.513 (+2.12%). Precious metals prices this morning are moving higher, with gold climbing to a 2-week high and silver posting a 4-week high.  A slide in the dollar today is supportive of precious metals.  Also, a decline in global bond yields today is bullish for metals prices.  In addition, metals found support on today’s weaker-than-expected U.S. economic news on July JOLTS job openings and August consumer confidence, which may prompt the Fed to pause its rate-hiking campaign.   On the negative side is the continued liquidation of gold holdings by funds after long gold holdings in ETFs fell to a 3-1/3 year low Monday.

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