Stocks Moderately Lower on Global Growth Concerns

What you need to know…

The S&P 500 Index ($SPX) (SPY) this morning is down by -0.22%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.20%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.50%. 

U.S. stocks this morning are moderately lower, led by weakness in technology stocks.   Global growth concerns are weighing on stocks today. Disappointing Chinese economic data today signals slower global growth prospects as the country’s Covid lockdowns nearly shut down economic activity.  Also, the war in Ukraine is undercutting growth in Europe after the European Commission today cut its 2022 Eurozone GDP forecast. 

Falling T-note yields limit losses in stocks today, with the 10-year T-note yield down -1.8 bp to 2.900%.  Also, a rally in crude prices today to a 1-1/2 month high has fueled a rally in energy stocks to limit losses in the overall market.   

Goldman Sachs said Sunday that the risk of an economic downturn amid price pressures and rising interest rates remained the major worry for markets and warned that there’s a “very, very high risk” for a U.S. recession. 

Morgan Stanley said, “with valuations now more attractive, equity markets so oversold, and rates potentially stabilizing below 3%, stocks appear to have begun another bear market rally.  After that, we remain confident that lower stock prices are still ahead.”

New York Fed President Williams said 50 bp rate hikes make sense at upcoming FOMC meetings, and he expects inflation to decline "quite a bit" next year.

The U.S. May Empire manufacturing survey general business conditions tumbled -36.2 points to -11.6, weaker than expectations of 15.0.

Today’s stock movers…

Twitter (TWTR) is down more than -5% today to add to last Friday’s -9% fall and lead losers in the S&P 500 after Elon Musk said his $44 billion deal to buy the company is pending until he receives more information about the proportion of fake accounts on the site.

Vulcan Materials (VMC) is down more than -4% today after the company shut down a Mexican quarry, which prompted Thompson, Davis & Co. to cut its price estimate for the stock to $210 from $225.

Homebuilders are falling today after an analysis of 13F filings shows several asset management firms reduced their holdings of homebuilding stocks. Lennar (LEN) is down more than -4%, and PulteGroup (PHM) and DR Horton (DHI) are down more than -3%. 

Bath & Body Works (BBWI) is down more than -3% today after D1 Capital Partners reported it sold 3.41 million BBWI stock in Q1 or 1.3% of its outstanding stock. 

Energy stocks and energy service providers are moving higher today after the price of WTI crude rose to a 1-1/2 month high.  Occidental Petroleum (OXY) and APA Corp (APA) are up more than +4%.  Also, Devon Energy (DVN), Marathon Oil (MRO), and Halliburton (HAL) are up more than +3%.  In addition, Schlumberger (SLB), Exxon Mobil (XOM), and Valero Energy (VLO) are up more than +2%.  Finally, Chevron (CVX) is up more than +2% to lead gainers in the Dow Jones Industrials. 

U.S.-listed Chinese internet stocks are climbing today after JPMorgan Chase upgraded the sector, saying government policy developments since mid-March have been supportive.  Pinduoduo (PDD) is up more than +5% to lead gainers in the Nasdaq 100.  Also, NetEase (NTES) and JD.com (JD) are up more than +2%, and Baidu (BIDU) and Alibaba Group Holding (BABA) are up more than +1%. 

Across the markets…

June 10-year T-notes (ZNM22) this morning are up +9 ticks, and the 10-year T-note yield is down -1.8 bp at 2.900%.  Signs of slowing global growth are giving T-note prices a boost this morning as Chinese economic data disappointed and the European Commission cut its 2022 Eurozone GDP forecast.   T-notes also found support today on U.S. data that showed May Empire manufacturing business conditions fell more than expected and after New York Fed President Williams said he expects inflation to decline "quite a bit" next year. 

The dollar index (DXY00) this morning is down -0.14%.  The dollar this morning is slightly lower on a decline in T-Note yields.  Also, the prospects of a less aggressive Fed weigh on the dollar after New York Fed President Williams said he favors 50 bp interest rate hikes at upcoming FOMC meetings and not 75 bp rate hikes.  U.S. economic data today on May Empire manufacturing business conditions were weaker than expected and bearish for the dollar. 

EUR/USD (^EURUSD) today is up +0.06%.  EUR/USD today is slightly higher on strength in European government bond yields, with the 10-year German bund yield up +1.4 bp at 0.962%.  EUR/USD also garnered support today on comments from ECB Governing Council member Villeroy who said “a euro that is too weak would go against our price stability objective.”  Gains in the euro were limited after the European Commission cut its 2022 Eurozone GDP forecast and raised its 2022 inflation forecast.

The German Apr wholesale price index rose a record +23.8% y/y (data from 1968).

The European Commission cut its Eurozone 2022 GDP forecast to 2.7% from a February estimate of 4.0% and raised its Eurozone 2022 inflation forecast to 6.1% from a February estimate of 3.5%.

USD/JPY (^USDJPY) today is down -0.14%.  The yen is modestly higher today on weakness in T-note yields. Also, sighs of price pressure si Japan are hawkish for BOJ policy and supportive of the yen after Japan producer prices in April rose a the fastest pace in 41 years.

Japan Apr PPI rose +10.0% y/y, higher than expectations of +9.4% y/y and the largest increase in 41 years.

June gold (GCM22) this morning is down by -2.0 (-0.11%), and May silver (SIK22) is up by +0.339 (+1.61%).  Precious metals today are mixed, with gold dropping to a 3-1/2 month low.  Last Friday’s rally in the dollar index to a 19-year high has led to massive long liquidation of long gold positions from funds after gold holding in ETF’s tumbled to a 1-1/2 month low Friday.  Losses in gold were limited, and silver rose on a weaker dollar and lower T-note yields.  Also, a slide in stocks has boosted the safe-haven demand for precious metals.