Stocks Retreat as Inflation Concerns Boost T-note Yields

What you need to know…

The S&P 500 Index ($SPX) (SPY) this morning is down by -0.67%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.66%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.27%. 

U.S. stock indexes this morning are moderately lower.  Higher T-note yields today are weighing on stocks as the 10-year T-note yield climbed to a 2-week high of 2.935%.   Also, a +1.7% increase in the price of WTI crude oil today is boosting inflation expectations and is negative for equities. 

A +13% jump in Salesforce today is supportive for stocks after the company raised its annual profit forecast.  Also, Today’s U.S. economic data was mostly better-than-expected and bullish for stocks.

The U.S. May ISM manufacturing index unexpectedly rose +0.7 to 56.1, stronger than expectations of a decline to 54.5.

U.S. Apr JOLTS job openings fell -455,000 to 11.40 million, showing a stronger labor market than expectations of a decline to 11.35 million.

U.S. Apr construction spending rose +0.2% m/m, weaker than expectations of +0.5% m/m.

Today’s stock movers…

Salesforce (CRM) is up more than +13% today to lead gainers in the S&P 500 and Dow Jones Industrials after reporting Q1 adjusted EPS of 98 cents, better than the consensus of 95 cents, and raising guidance on full-year adjusted EPS to $4.74-$4.76 from a previous forecast of $4.62-$4.64.  Other software stocks are moving higher on the Salesforce news, with Adobe (ADBE) and ServiceNow (NOW) up more than +4%, and Microsoft (MSFT) and Autodesk (ADSK) up more than +2%. 

Strength in technology stocks today is supportive of the overall market.  Datadog (DDOG) is up more than +4% to lead gainers in the Nasdaq 100.  Also, Amazon.com (AMZN), Alphabet (GOOGL), and Meta Platforms (FB) are up +2%. 

Energy stocks and energy service providers are moving higher today, with the price of crude up more than +2%.  Marathon Oil (MRO), ConocoPhillips (COP), Baker Hughes (BKR), and APA Corp (APA) are up more than +3%.  Also, Diamondback Energy (FANG), Devon Energy (DVN), Exxon Mobil (XOM), and Occidental Petroleum (OXY) are all up more than +2%. 

Airline stocks are falling today on concern higher jet fuel costs will erode corporate profits, with crude prices up more than +1%.  As a result, Delta Air Lines (DAL) and United Airlines Holdings (UAL) are down more than -3%. Also, American Airlines Group (AAL), Alaska Air Group (ALK), and Southwest Airlines (LUV) are down more than -2%.

S&P Global (SPGI) is down more than -3% today after the company suspended financial guidance for the full year 2022, saying macroeconomic conditions have deteriorated since it last provided financial guidance on May 3. 

Across the markets…

September 10-year T-notes (ZNU22) this morning are down -22 ticks, and the 10-year T-note yield is up +8.4 bp at 2.923%.  Sep T-notes this morning fell to a 2-week low, and the 10-year T-note yield rose to a 2-week high of 2.935%.  Weakness in German bunds weighs on T-note prices as the 10-year German bund yield jumped to a 3-week high today of 1.171% on hawkish ECB comments.  Also, today’s stronger-than-expected U.S. economic data on May ISM manufacturing and Apr JOLTS job openings weighed on T-note prices.

The dollar index (DXY00) this morning is up +0.16%.  Higher T-note yields today are supporting moderate gains in the dollar.  Also, weakness in the yen is positive for the dollar after the yen tumbled to a 2-week low today against the dollar. 

EUR/USD (^EURUSD) today is down -0.20%.  EUR/USD is under pressure today on negative carry-over from Tuesday after Eurozone May consumer prices rose more than expected at a record pace.  The euro was also under pressure after German April retail sales posted their biggest decline in a year.  Losses in EUR/USD were limited after the 10-year German bund yield today climbed to a 3-week high on hawkish comments from ECB Governing Council member Holzmann.

The Eurozone May S&P Global manufacturing PMI was revised upward to 54.6 from the previously reported 54.4.

German Apr retail sales fell -5.4% m/m, weaker than expectations of -0.5% m/m and the biggest decline in a year.

ECB Governing Council member Holzmann said the latest all-time high for Eurozone inflation strengthens the case for the ECB to lift interest rates by 50 bp in July.  He added that "a 50 bp rate hike would send a decisive signal that the ECB was serious about fighting inflation and would also support the euro's exchange rate."

USD/JPY (^USDJPY) today is up +0.49% at a 2-week high.  The yen is under pressure today from higher T-note yields today as the 10-year T-note yield climbed to a 2-week high.  Also, weaker-than-expected Japanese economic data undercut the yen. Finally, comments today from BOJ Deputy Governor Wakatabe weighed on the yen when he said, “to address inflation, it is necessary to persistently continue with monetary easing.” 

Japan Q1 capital spending rose +3.0% y/y, weaker than expectations of +3.6% y/y.  Q1 capital spending ex-software rose +5.0% y/y, weaker than expectations of +5.5% y/y.

Japan May vehicle sales fell -16.7% y/y, the ninth consecutive month vehicle sales have declined.

August gold (GCQ22) this morning is up +1.1 (+0.06%), and July silver (SIN22) is up by +0.257 (+1.18%).  Precious metals today are slightly higher.  Concern about elevated global price pressures is underpinning precious metals prices after Tuesday’s data showed Eurozone May CPI rose a record +8.1% y/y (data from 2001), stronger than expectations of +7.8% y/y.  Metals prices are seeing downward pressure from a stronger dollar and higher U.S. and European bond yields.