Stocks Retreat on Escalating Middle East Tensions

The S&P 500 Index ($SPX) (SPY) today is down by -0.72%, the Dow Jones Industrials Index ($DOWI) (DIA) is down by -0.71%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down by -0.88%.

Stocks today are moderately lower as escalating Middle East tensions sparked long liquidation pressure in stocks. Israel began a limited ground assault into Lebanon, and US intelligence said that Iran is preparing to launch a ballistic missile attack against Israel.

Corporate news today is mixed for stocks.  Apple is down more than -2% after Barclays said availability for iPhone 16 suggests “softer demand” relative to last year.  Also, ZIM Integrated Shipping Services Ltd is down more than -7% after dockworkers began a strike and walked out of every major port in the US East and Gulf coasts.  On the positive side, Ford Motor is up more than +1% after it said it is in talks to manufacture electric vehicles at its plant in southern India.  Also, Alphabet and Meta Platforms are up more than +1% after Pivotal Research initiated coverage on the stocks with buy recommendations.

Signs of easing global inflation are pushing bond yields lower and are supporting stocks after the Eurozone Sep CPI eased to 1.8% y/y, below the ECB’s 2.0% target and the smallest increase in almost 3-1/2 years.   

The markets are looking ahead to Friday's monthly US payroll report for market direction.  Sep nonfarm payrolls are expected to climb +146,000, and the Sep unemployment rate is expected to remain unchanged at 4.2%.

The markets are discounting the chances at 100% for a -25 bp rate cut at the November 6-7 FOMC meeting and at 39% for a -50 bp rate cut at that meeting.

Overseas stock markets today are higher.  The Euro Stoxx 50 is up by +0.30%.  China's Shanghai Composite is closed for the week-long National Day holiday.   Japan's Nikkei Stock 225 closed up by +1.93%.

Interest Rates

December 10-year T-notes (ZNZ24) today are up +20 ticks.  The 10-year T-note yield is down -6.6 bp at 3.715%.  Dec T-notes rallied to a 1-week high today, and the 10-year T-note yield fell to a 1-week low of 3.701%.  T-notes are climbing today on carryover support from a rally in 10-year German bunds to an 8-3/4 month high.  Gains in T-notes accelerated today after US intelligence said that Iran is preparing to imminently launch a ballistic missile attack against Israel, which boosted safe-haven demand for T-notes.

European government bond yields today are lower.  The 10-year German bund yield fell to an 8-3/4 month low of 2.010% and is down -9.6 bp at 2.027%.  The 10-year UK gilt yield fell to a 1-week low of 3.913% and is down -7.1 bp at 3.932%.

The Eurozone Sep S&P manufacturing PMI was revised upward by +0.2 to 45.0 from the previously reported 44.8.

The Eurozone Sep CPI eased to +1.8% y/y from +2.2% y/y in Aug, right on expectations and the slowest pace of increase in almost 3-1/2 years. Sep core CPI eased to +2.7% y/y from +2.8% y/y in Aug, right on expectations.

ECB Governing Council member Rehn said easing inflation pressures and a deteriorating Eurozone economy support the case for the ECB to cut interest rates this month.

Swaps are discounting the chances of a -25 bp rate cut by the ECB at 93% for the October 17 meeting.

US Stock Movers

Apple (AAPL) is down more than -2% to lead losers in the Dow Jones Industrials after Barclays said availability for iPhone 16 suggests “softer demand” relative to last year. 

ZIM Integrated Shipping Services Ltd (ZIM) is down more than -7% after dockworkers began a strike and walked out of every major port in the US East and Gulf coasts.

Charles River Laboratories International (CRL) is down more than -2% after Citigroup downgraded the stock to sell from neutral with a price target of $175.

HP Inc (HPQ) and CDW Corp (CDW) are down more than -3% after Citigroup downgraded the stocks to neutral from buy. 

Boeing (BA) is down more than -1% after Bloomberg reported the company is considering raising at least $10 billion by selling new stock. 

Antero Resources (AR) is down more than -1% after Wells Fargo Securities double-downgraded the stock to underweight from overweight with a price target of $25.

Alphabet (GOOGL) and Meta Platforms (META) are up more than +1% after Pivotal Research initiated coverage on the stocks with a buy recommendation and a price target of $215 for Alphabet and a $780 price target for Meta Platforms.

Ford Motor (F) is up more than +1% after it said it is in talks to manufacture electric vehicles at its plant in southern India. 

Atlassian (TEAM) is up more than +1% after Raymond James upgraded the stock to outperform from market perform with a price target of $200. 

Coherent Corp (COHR) is up more than +1% after Susquehanna Financial upgraded the stock to positive from neutral with a price target of $120. 

Datadog (DDOG) is up more than +1% in pre-market trading after D.A. Davidson & Co. upgraded the stock to buy from neutral with a price target of $140.

Steel Dynamics (STLD) is up more than +1% after Bank of America Global Research upgraded the stock to buy from neutral with a price target of $155. 

Earnings Reports (10/1/2024)

Acuity Brands Inc (AYI), Lamb Weston Holdings Inc (LW), McCormick & Co Inc/MD (MKC), NIKE Inc (NKE), Paychex Inc (PAYX).

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