Stocks Slightly Higher as Chinese Stimulus Boosts Risk Sentiment in Asset Markets

The S&P 500 Index ($SPX) (SPY) today is up by +0.04%, the Dow Jones Industrials Index ($DOWI) (DIA) is up by +0.30%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up by +0.12%.

Stocks today are slightly higher, with the Dow Jones Industrials posting a new all-time high.  Global stocks today have carryover support from a +4% surge in Chinese stocks after China announced additional stimulus measures. 

Today's risk sentiment improved in stocks after the PBOC announced a broad package of stimulus measures.  The PBOC cut the seven-day reverse repurchase rate by -20 bp to 1.50% from 1.70% and lowered the reserve requirement ratio for large banks by 50 bp to 9.50% from 10.00%, which will boost liquidity in the banking system by 1 trillion yuan ($142 billion).  The PBOC also reduced the minimum down payment ratio to 15% for second-home buyers from 25%. In addition, the PBOC said it would provide at least 800 billion yuan ($113 billion) of liquidity support for stocks as it will set up a swap facility allowing securities, funds, and insurance companies to tap the PBOC to buy stocks.

Stocks fell back from their best levels today after the Conference Board’s US Sep consumer confidence index unexpectedly declined.  Also, weak US manufacturing news today weighed on stocks after the Sep Richmond Fed manufacturing survey unexpectedly fell to a 4-1/3 year low.

Hawkish comments today from Fed Governor Bowman, the only dissent on the Fed’s 50 bp rate cut last week, weighed on stocks when she said the Fed should lower interest rates at a "measured" pace as inflationary risks remain and that the labor market has not shown significant weakening.

The US Jul S&P CoreLogic composite-20 home price index eased to +5.92% y/y from +6.54% y/y in June, the smallest pace of increase in 8 months. 

The Conference Board US Sep consumer confidence index unexpectedly fell -6.9 to 98.7 versus expectations of an increase to 104.0.

The US Sep Richmond Fed manufacturing survey unexpectedly fell -2 to a 4-1/3 year low of -21, weaker than expectations of an increase to -12.

The markets are awaiting inflation news on Friday when the US core PCE price index, the Fed’s preferred inflation gauge, is released.  The consensus is that the Aug core PCE price index rises +0.2% m/m and climbs +2.7% y/y from +2.6% y/y in July.

The markets are discounting the chances at 100% for a -25 bp rate cut at the November 6-7 FOMC meeting and at 57% for a -50 bp rate cut at that meeting.

Overseas stock markets today are higher.  The Euro Stoxx 50 rose to a 3-week high and is up +0.68%. China's Shanghai Composite rallied to a 3-week high and closed up sharply by +4.15%.   Japan's Nikkei Stock 225 climbed to a 3-week high and closed up +0.57%.

Interest Rates

December 10-year T-notes (ZNZ24) today are up +1 tick.  The 10-year T-note yield is down -0.2 bp to 3.747%.  Dec T-notes today recovered from a 2-week low and are slightly higher, and the 10-year T-note yield fell back from a 2-1/2 week high of 3.808%.  T-notes recovered early losses today and moved higher on weaker-than-expected US economic news on Sep consumer confidence and the Sep Richmond Fed manufacturing outlook survey.

Today, T-notes initially moved lower after inflation expectations increased when the 10-year breakeven inflation rate rose to a 1-3/4 month high of 2.188%.  Also, supply pressures are undercutting T-notes as the Treasury will auction $183 billion T-notes this week, beginning with today’s $60 billion auction of 2-year T-notes. 

European government bond yields today are mixed.  The 10-year German bund yield is down -1.3 bp to 2.144%. The 10-year UK gilt yield rose to a 3-week high of 3.996% and is up +1.8 bp to 3.941%.

The German Sep IFO business confidence index fell -1.2 to an 8-month low of 85.4, weaker than expectations of 86.0.

ECB Governing Council member Muller said ECB policymakers may lack sufficient data to make a decision on interest rates in October, but "It will be easier to decide in December because then we'll have a full picture with an updated outlook." 

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 59% for the October 17 meeting.

US Stock Movers

Stocks exposed to China are moving higher today after the PBOC announced a slew of stimulus measures to boost the Chinese economy, housing sector, and stock market.  PDD Holdings (PDD) is up more than +9% to lead gainers in the Nasdaq 100.  Also, JD.com (JD) is up more than +10%.  In addition, NetEase (NTES), Alibaba Group Holding Ltd (BABA), and Yum China (YUMC) are up more than +6%.  Finally, Caterpillar (CAT) is up more than +4% to lead gainers in the Dow Jones Industrials.

Mining and metals stocks are climbing today after copper prices jumped more than +2% to a 2-1/4 month high when China boosted stimulus measures. As a result, Freeport McMoRan (FCX) is up more than +6% to lead gainers in the S&P 500.  Also, Alcoa (AA) is up more than +7%, and Southern Copper (SCCO) is up more than +6%.  In addition, Albemarle (ALB) is up more than +4%. 

Uber Technologies (UBER) is up more than 2% after Raymond James initiated coverage on the stock with a recommendation of a strong buy with a price target of $90.  

Salesforce (CRM) is up more than +1% after Piper Sandler upgraded the stock to overweight from neutral with a price target of $325. 

Lowe’s (LOW) is up nearly +1% after Oppenheimer & Co. upgraded the stock to outperform from market perform with a price target of $305. 

McKesson Corp (MCK) is down more than -5% to lead losers in the S&P 500 after Baird downgraded the stock to neutral from outperform. 

Regeneron Pharmaceuticals (REGN) is down more than -4% to lead losers in the Nasdaq 100 after Leerink Partners downgraded the stock to market perform from outperform. 

Visa (V) is down more than -3% to lead losers in the Dow Jones Industrials on news that the US Justice Department’s antitrust division is set to file a lawsuit against the company for a range of anticompetitive conduct.   

Autozone (AZO) is down more than -2% after reporting Q4 domestic comparable sales rose +0.2%, well below the consensus of +1.15%. 

Essex Property Trust (ESS) is down more than -2% after Bank of America Global Research downgraded the stock to neutral from buy.

Triumph Group (TGI) is down more than -4% after Bank of America Global Research downgraded the stock to underperform from buy with a price target of $12. 

Earnings Reports (9/24/2024)

AutoZone Inc (AZO), Critical Metals Corp (CRML), KB Home (KBH), Progress Software Corp (PRGS), Stitch Fix Inc (SFIX), Thor Industries Inc (THO), Worthington Enterprises Inc (WOR).

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