Stocks Slide on Higher T-note Yields

What you need to know…

The S&P 500 Index ($SPX) (SPY) this morning is down by -0.81%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.77%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.96%. 

U.S. stock indexes this morning are moderately lower.  A jump in the 10-year T-note yield to a 1-week high of 2.871% is undercutting technology stocks and is weighing on the overall market. Stocks are also seeing downward pressure from global inflation concerns after the Eurozone May CPI rose by a record pace. 

Hawkish comments from Fed Governor Waller pushed T-note yields higher and weighed on stocks when he said he "supports tightening policy by 50 bp for several FOMC meetings" and "in particular, he's not taking 50 bp rate hikes off the table until he sees inflation coming down closer to the Fed's 2% target." 

A bullish factor for stocks today is the +1.19% rally in China’s Shanghai Composite to a 1-1/4 month high after Beijing and Shanghai moved to ease some pandemic lockdown measures as the pace of new Covid infections declined. Also, stocks saw support from better-than-expected Chinese May manufacturing and non-manufacturing PMIs. Finally, today’s U.S. economic data was better than expected and supportive of stocks.

The U.S. Mar S&P CoreLogic composite-20 home price index rose by a record +21.17% y/y, stronger than expectations of +20.00% y/y.

The U.S. May MNI Chicago PMI unexpectedly rose +3.9 to 56.4, stronger than expectations of a decline to 55.0.

The Conference Board’s May U.S. consumer confidence index fell -2.2 to 106.4, stronger than expectations of 103.6.

The China May manufacturing PMI rose +2.2 to 49.6, stronger than expectations of 49.0.  The China May non-manufacturing PMI rose +5.9 to 47.8, stronger than expectations of 45.5.Slide 

Today’s stock movers…

Higher interest rates today are undercutting technology stocks and are weighing on the overall market. Illumina (ILMN) is down more than -5% to lead losers in the Nasdaq 100.  Also, Lam Research (LRCX), KLA Corp (KLA), Splunk (SPLK), Marvell Technology (MRVL), and DocuSign (DOCU) are all down more than -3%.

Airline stocks are weaker today as a jump of more than +2% in crude prices to a 1-1/2 month high puts upward pressure on jet fuel prices.  United Airlines Holdings (UAL) and Delta Air Lines (DAL) are down more than -3%.  Also, American  Airlines Group (AAL) and Alaska Air Group (ALK) are down more than -2% and Southwest Airlines (LUV) is down more than -1%.

American Eagle Outfitters (AEO) is down more than -9% today after Morgan Stanley downgraded the stock to underweight from equal weight, citing “further, material downside” after the company cut its guidance last week.

Dexcom (DXCM) is up more than +7% today to lead gainers in the S&P 500 and Nasdaq 100 after it said it is not in active talks for a merger.  Bloomberg reported last week that Decom was talking with Insulet about acquiring the company. 

Energy stocks and energy service providers are moving higher today, with the price of crude up more than +2% today at a 1-1/2 month high.  Marathon Oil (MRO) and Diamondback Energy (FANG) are up more than +3%.  Also, Hess Corp (HES) and APA Corp (APA) are up more than +2%.  In addition, Devon Energy (DVN), Exxon Mobil (XOM), ConocoPhillips (COP), and Occidental Petroleum (OXY) are all up more than +1%. 

U.S.-listed Chinese stocks are moving higher today after several major cities in China eased lockdowns and better-than-expected Chinese economic data improved market sentiment. JD.com (JD) is up more than +5%, and Baidu (BIDU) is up more than +4%.  Also, Alibaba Group Holding (BABA) and Pinduoduo (PDD) are up more than +3%. 

Across the markets…

June 10-year T-notes (ZNM22) this morning are down -19 ticks, and the 10-year T-note yield is up +9.7 bp at 2.835%.  Jun T-notes this morning fell to a 1-week low, and the 10-year T-note yield rose to a 1-week high of 2.871%.  A sell-off in German bunds today is weighing on T-note prices as the 10-year German bund yield jumped to a 3-week high today of 1.134% after Eurozone May consumer prices rose more than expected at a record pace. 

Also, a jump in inflation expectations is undercutting T-notes as the 10-year breakeven inflation rate climbed to a 1-1/2 week high today of 2.707%.  Finally, hawkish comments from Fed Governor Waller were bearish for T-notes when he said, “he's not taking 50 bp rate hikes off the table until he sees inflation coming down closer to the Fed's 2% target."

The dollar index (DXY00) this morning is up +0.25%.  Higher T-note yields today are supporting moderate gains in the dollar.  Also, weakness in stocks today has boosted the liquidity demand for the dollar. 

EUR/USD (^EURUSD) today is down -0.64%.  Strength in the dollar today is weighing on EUR/USD.  Also, reduced purchasing power for the euro is undercutting EUR/USD today after Eurozone May consumer prices rose more than expected at a record pace.  Higher Eurozone government bond yields are limiting the downside in EUR/USD after the 10-year German bund yield climbed to a 3-week high today.

Eurozone May CPI rose a record +8.1% y/y (data from 2001), stronger than expectations of +7.8% y/y. Eurozone May core CPI rose a record +3.8% y/y (data from 1997), stronger than expectations of +3.6% y/y.

France Apr consumer spending unexpectedly fell -0.4% m/m, weaker than expectations of +0.5% m/m.

USD/JPY (^USDJPY) today is up +0.89% at a 1-1/2 week high.  Higher T-note yields today are undercutting the yen after the 10-year T-note yield rose to a 1-week high.  Also, Japanese economic concerns are weighing on the yen after Japan Apr industrial production fell more than expected.  Dovish comments from BOJ Governor Kuroda were bearish for the yen when he said the BOJ would support the economy with “persistent” easing. 

June gold (GCM22) this morning is down -1.4 (-0.08%), and July silver (SIN22) is down by -0.191 (-0.86%).  Precious metals today are moderately lower, with silver falling to a 1-1/2 week low. Strength in the dollar today is weighing on metals prices.  Gold prices are also being undercut today by higher global bond yields.  Losses in gold are limited as accelerating inflation pressures are spurring demand for gold as an inflation hedge after Eurozone May CPI rose a record +8.1% y/y (data from 2001), stronger than expectations of +7.8% y/y.