Stocks Climb on Strength in Tech Stocks and Favorable Chinese News

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is up +0.43%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.23%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.58%.

Stock indexes this morning are moderately higher.  Strength in technology stocks today is boosting the overall market, with Tesla up more than +7% after Mogan Stanley upgraded the stock.  Also, Qualcomm is up more than +3% after Apple extended its contract with the company to provide it with modem semiconductor chips for three more years. In addition, M&A activity is supporting stocks after JM Smucker agreed to acquire Hostess Brands for $5.6 billion.  Higher T-note yields today are limiting gains in stocks.

Comments on Sunday from U.S. Treasury Secretary Yellen were bullish for stocks when she said she's "feeling very good" about the case for a soft landing in the U.S.  as "every measure of inflation is on the road down," and she's increasingly confident that the U.S. will be able to contain inflation without major damage to the job market.

U.S. and European stocks garnered carryover support today from a +0.84% rally in China’s Shanghai Composite on positive Chinese credit and inflation news.

The markets are discounting the odds at 7% for a +25 bp rate hike at the September 20 FOMC meeting and 44% for that +25 bp rate hike at the November 1 FOMC meeting. 

Global bond yields are higher.  The 10-year T-note yield is up +2.8 bp at 4.292%.  The 10-year German bund yield is up +2.9 bp at 2.639%.  The 10-year UK gilt yield is up +5.7 bp at 4.481%. 

Overseas stock markets are mixed.  The Euro Stoxx 50 is up +0.54%.  China’s Shanghai Composite Index closed up +0.84%.  Japan’s Nikkei Stock Index closed down -0.43%.

China Aug CPI rose +0.1% y/y from a -0.3% y/y decline in July, right on expectations.  China Aug PPI eased to -3.0% y/y from -4.4% y/y in July, weaker than expectations of -2.9% y/y.

China Aug new yuan loans were 1.36 trillion yuan, above expectations of +1.25 trillion yuan.  Aug aggregate financing, the broadest measure of credit growth, rose +3.12 trillion yuan, stronger than expectations of +2.69 trillion yuan.

Today’s stock movers…

Tesla (TSLA) is up more than +7% to lead gainers in the S&P 500 and Nasdaq 100 after Morgan Stanley upgraded the stock to overweight from equal weight and said Tesla’s Dojo supercomputer may add as much as $500 billion to the company’s market value through faster adoption of robotaxis and network services. 

Walt Disney (DIS) is up more than +2% to lead gainers in the Dow Jones Industrials, and Charter Communications (CHTR) is up more than +3% after CNBC said Disney and Charter Communications are nearing a carriage deal.

State Street (STT) is up more than +4% after its management presented an upbeat assessment of its outlook to the Barclays Global Financial Services Conference.

Kenvue (KVUE) is up more than +3% after Deutsche Bank raised its recommendation on the stock to buy with a price target of $27.   

Qualcomm (QCOM) is up more than +3% after Apple extended its modem chip contract with the company for three more years.

Crinetics Pharmaceuticals (CRNX) soared more than +72% after it said its oral, once-daily Paltusotine achieved positive results and met the primary endpoint and all secondary goals to treat people living with acromegaly and neuroendocrine tumors. 

Hostess Brands (TWNK) is up more than +18% after JM Smucker agreed to acquire the company for $5.6 billion.   

JM Smucker (SJM) is down more than -7% to lead losers in the S&P 500 after it agreed to acquire Hostess Brands for $5.6 billion.   

RTX Corp (RTX) is down more than -6% after cutting its full-year sales forecast to $67.5 billion-$68.5 billion from a previous estimate of $73 billion-$74 billion, weaker than the consensus of $73.64 billion. 

AstraZeneca Plc (AZN) is down more than -2% to lead losers in the Nasdaq 100 after data released from a Phase III trial of its Tagrisso drug combined with chemotherapy showed the efficacy benefit of the drug came with a cost of added toxicity from the chemo regimen.  

Higher T-note yields today are weighing on chip stocks.  Advanced Micro Devices (AMD) and Lam Research (LRCX) are down more than -2%.  Also, Nvidia (NVDA), Applied Materials (AMAT), ASML Holding NV (ASML), On Semiconductor (ON), and KLA Corp (KLAC) are down more than -1%.

Ovintiv Inc (OVV) is down more than -2% after announcing a sale of 15 million shares of the company’s common stock by a holder.

VF Corp (VFC) is down more than -2% after it was ordered to pay $505 million in taxes related to its reorganization of TBL Licensing LLC.

Brunswick Corp (BC) is down by more than -1% after JPMorgan Chase downgraded the stock to neutral from overweight.

Across the markets…

December 10-year T-notes (ZNZ23) today are down -6 ticks, and the 10-year T-note yield is up +2.8 bp at 4.292%.  Dec T-note prices today are moderately lower, and yields are higher on negative carryover from a slump in Japanese government bonds.  The 10-year JGB bond yield soared to a 9-1/2 year high today after BOJ Governor Ueda said an end to negative interest rates is possible by year-end.   Supply pressures are also undercutting T-notes as the Treasury will auction $44 billion of 3-year T-notes later today as part of this week’s $99 billion package of T-note and T-bond auctions. In addition, today’s stock rally has curbed safe-haven demand for T-notes.  Finally, an increase in inflation expectations is bearish for T-notes after the 10-year inflation breakeven rate rose to a 2-week high today at 2.347%.

The dollar index (DXY00) today is down by -0.45%.  Strength in the yen and yuan today is undercutting the dollar. The yen rallied to a 1-week high against the dollar today after BOJ Governor Ueda said Japan’s negative interest rate policy could end by the end of the year.  Also, the yuan strengthened against the dollar on better-than-expected news on Chinese credit growth and after the PBOC said it would take action to correct one-sided moves in the market whenever it’s needed.

EUR/USD (^EURUSD) is up by +0.34%.  A weaker dollar today is supportive of the euro.  Gains in EUR/USD are limited on weaker-than-expected economic news from Italy and after the European Commission cut its 2023 Eurozone GDP forecast, a dovish factor for ECB policy.  The markets are discounting the odds at 38% for a +25 bp rate hike at this Thursday’s ECB meeting.

The European Commission cut its 2023 Eurozone GDP forecast to +0.8% from an earlier projection of +1.1%. It also cut its 2023 Eurozone inflation forecast to +5.6% from a previous forecast of +5.8%.

Italy July industrial production fell -0.7% m/m, weaker than expectations of -0.3% m/m.

USD/JPY (^USDJPY) is down -0.98%.  The yen today jumped to a 1-week high against the dollar on hawkish comments from BOJ Governor Ueda, who said an end to negative interest rates is possible by year-end.  Ueda’s comments sent the 10-year JGB bond yield soaring to a 9-1/2 year high of 0.711%, strengthening the yen’s interest rate differentials.

BOJ Governor Ueda told the Yomiuri newspaper that the BOJ will have enough information and data by the year-end to judge if wages will continue to rise, a condition for adjusting stimulus.

A negative factor for the yen was today’s Japanese economic news that showed Aug machine tool orders fell -17.6 % y/y, the eighth consecutive month orders have declined.

October gold (GCV3) today is up +7.0 (+0.36%), and Dec silver (SIZ23) is up +0.201 (+0.86%). A weaker dollar today is boosting precious metals prices.  A weaker dollar today is bullish for metals.  Also, reduced expectations for an interest rate increase by the ECB this week are supportive for gold as the markets have priced in only a 38% chance the ECB will raise interest rates by 25 bp this Thursday.   Negative factors for metals include today’s downward revision by the European Commission to its 2023 Eurozone GDP forecast to +0.8% from an earlier projection of +1.1%, which signals reduced demand for industrial metals. Also, the continued liquidation of gold holdings by funds is bearish for gold after long gold holdings in ETFs fell to a 3-1/3 year low last Friday.

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