Stocks Plunge as T-Note Yields Soar on Inflation Fears

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is down by -3.31%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -2.37%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -3.75%. 

Stocks today are sharply lower for a third session, with the S&P 500 and Dow Jones Industrials falling to 15-month lows and the Nasdaq 100 dropping to a 19-month low. 

Global equity markets are sinking today on concern that soaring inflation will prompt the Fed to be more aggressive in tightening monetary policy, which will slow economic growth and possibly spark a recession. The 10-year T-note yield surged to an 11-year high today of 3.303%.  T-note yields continue to climb and weigh on stocks on negative carry-over from last Friday’s U.S. consumer price report, which showed that the headline May CPI rose to a new 40-year high of 8.6% y/y.

The markets are expecting the FOMC to raise the target on the fed funds range by 50 bp after its two-day policy meeting this Tue/Wed. The markets will also look to the FOMC’s inflation and long-term growth forecasts and comments from Fed Chair Powell to see if the Fed will be more aggressive in tightening monetary policy.

Stocks are also being undercut by a run on risk with bitcoin plunging -20% today, which is causing panic among some crypto investors.

Today’s stock movers…

Technology stocks are being hammered today and are weighing on the overall market after the 10-year T-note yield soared to an 11-year high.  Crowdstrike Holdings (CRWD) is down more than -10% to lead losers in the Nasdaq 100.  Also, Datadog (DDOG), Zscaler (ZS), Okta (OKTA), and Atlassian Corp Plc (TEAM) are down more than -7%.  In addition, Nvidia (NVDA), Netflix (NFLX), Tesla (TSLA), and Marvell Technology (MRVL) are down more than -5%. 

Cruise operators, travel, hotel, and leisure stocks are under pressure today on concern that rising inflation will curb discretionary consumer spending.  Norwegian Cruise Line Holdings (NCLH) is down more than -9%, and Carnival (CCL) is down more than -8%.  Also, Caesars Entertainment (CZR) and Penn National Gaming (PENN) are down more than -7%.  In addition, Live Nation Entertainment (LYV), Wynn Resorts (WYNN), American Airlines Group (AAL), United Airlines Holdings (UAL), Booking Holdings (BKNG), Royal Caribbean Cruises (RCL), and Las Vegas Sands (LVS) are down more than -6%.

A decline of more than -1% in crude oil prices today is weighing on energy stocks and energy service providers.  Devon Energy (DVN), Diamondback Energy (FANG), Haliburton (HAL), and Schlumberger (SLB) are down more than -6%.  Also, Marathon Oil (MRO), ConocoPhillips (COP), Baker Hughes (BKR), and Occidental Petroleum (OXY) are down more than -5%.

Duke Realty (DRE) is up more than +1% today to lead gainers in the S&P 500 after Prologis said it would acquire the company in a $26 billion all-stock deal. 

Across the markets…

Sep 10-year T-notes (ZNU22) this morning are down -31 ticks, and the 10-year T-note yield is up +13.4 bp at 3.289%.  T-note prices plunged to a 12-year low today, and the 10-year T-note yield soared to an 11-year high of 3.303%.   T-notes extended last Friday’s sharp losses that were caused by the stronger-than-expected U.S. CPI report and expectations for even more Fed tightening through mid-2023.  Also, surging European government bond yields are weighing on T-note prices after the 10-year German bund yield rose to an 8-year high of 1.615%, and the 10-year UK gilt yield rose to a 7-3/4 year high of 2.499%.

The dollar index (DXY00) this morning is up +0.74% at a 1-month high and is close to testing last month’s 19-1/2 year high.  Soaring T-note yields and speculation the Fed will need to be more aggressive in its rate hike cycle is boosting the dollar.  The 10-year T-note yield jumped to an 11-year high today, which strengthens the dollar’s interest rate differentials. 

EUR/USD (^EURUSD) is down -0.71% today at a 3-1/2 week low.   Dollar strength today is weighing on the euro, along with comments from ECB Governing Council member Kazimir who said, "economic growth in the Eurozone is set to be weak for several quarters."  Losses in EUR/USD were contained after the 10-year German bund yield jumped to a new 8-year high.

Hawkish ECB comments today boosted Eurozone bond yields and were supportive of EUR/USD.   ECB Governing Council member Simkus said, "the balance of risks for inflation is to the upside.  Inflation is high and becoming more broad-based, and its pace keeps surprising again and again."  Also, ECB Governing Council member Kazimir said that he "clearly sees the need for the ECB to accelerate the pace and raise rates by 50 bp in September as incoming inflation data only confirm to me that there's no reason to hesitate." 

USD/JPY (^USDJPY) today is down -0.54%.  The yen recovered from a 24-year low against the dollar today on comments from BOJ Governor Kuroda, who said “the rapid depreciation of the yen is undesirable and negative for the economy.  They increase uncertainties and make it hard for businesses to make plans.” A sharp selloff in stocks today is also boosting safe-haven demand for the yen among Japanese investors.

The Japan Q2 BSI large manufacturing business conditions index fell -2.3 to a 2-year low of -9.9.

August gold (GCQ22) this morning is down -41.7 (-2.22%), and July silver (SIN22) is down by -0.766 (-3.49%).  Precious metals today are sharply lower, with silver falling to a 4-week low.  A rally in the dollar index today to a 1-month high is undercutting precious metals prices.  Gold is also falling back on higher global bond yields, with the 10-year T-note jumping to an 11-year high and the 10-year German bund yield and 10-year UK gilt yield climbing to 8-year highs.  Fear that global central banks will spark a recession from aggressive interest rate hikes is also undercutting silver prices on concern a recession will slow economic growth and reduce demand for industrial metals.