Stocks See Pressure from Weak U.S Economic Data and Higher T-Note Yields

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is down by -0.19%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.34%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.20%. 

Stocks today are mixed.  U.S. stock indexes today gave up most of this morning’s early gains after U.S. industrial and manufacturing report disappointed.  Stocks were also under pressure today after comments from Fed Chair Powell boosted T-note yields and bolstered speculation the Fed will pursue aggressive rate hikes to tame inflation.

Today brings the quarterly expiration of stock futures and options known as triple witching.  The market is looking ahead to today’s expiration of $3.5 trillion in option positions and also the weight-rebalancing of many indexes.

A positive for stocks is data from EPFR Global showing that U.S. stocks attracted $14.8 billion in inflows in the week through June 15. U.S. stock indexes also have carry-over support from a rally in European stocks today after Bank of America raised its recommendation on European stocks to neutral from negative.

U.S. May manufacturing production unexpectedly fell -0.1% m/m, weaker than expectations of +0.3% m/m and the first decline in four months.  Also, May industrial production rose +0.2% m/m, weaker than expectations of +0.4% m/m.

In welcoming remarks today at a Fed conference on the international role of the dollar, Fed Chair Powell said, “my colleagues and I are acutely focused on returning inflation to our 2% objective.  The Federal Reserve’s strong commitment to our price-stability mandate contributes to the widespread confidence in the dollar as a store of value.”

Today’s stock movers…

Technology stocks are climbing today as they recover some of this week’s rout.  Atlassian Corp Plc (TEAM) is up more than +5% to lead gainers in the Nasdaq 100.  Also, Okta (OKTA), Intuit (INTU), and Align Technology  (ALGN) are up more than +4%.  In addition, Tesla (TSLA), Crowdstrike Holdings (CRWD), and Splunk (SPLK) are up more than +3%. 

Bank and credit card stocks are climbing today after Baird raised its recommendation on the stocks to outperform from neutral.  American Express (AXP) is up more than +2% to lead gainers in the Dow Jones Industrials.  Also, Fifth Third Bancorp (FITB), Discover Financial Services (DFS), M&T Bank (MTB), and Zions Bancorp (ZION) are up more than +2%.   

Citrix Systems (CTXS) is up more than +4% today to lead gainers in the S&P 500 after it filed with the European Commission for its proposed $16.5 billion sale to Elliot Management and Vista Equity. 

A drop of more than -2% in crude oil prices today is weighing on energy stocks and energy service providers.  ConocoPhillips (COP), Devon Energy (DVN), Diamondback Energy (FANG), and Marathon Oil (MRO) are down more than -2%.  Also, Valero Energy (VLO) and Exxon Mobil (XOM) are down more than -1%.  In addition, Chevron (CVX) is down more than -1% to lead losers in the Doe Jones Industrials.

Kroger (KR) is down more than -3% today to add to Thursday’s -2% decline after the company reported a Q1 gross margin of 21.6%, lower than the consensus of 22% due to higher costs. 

Across the markets…

Sep 10-year T-notes (ZNU22) this morning are down -4 ticks, and the 10-year T-note yield is up +2.1 bp at 3.254%.  Higher European government bond yields today are weighing on T-note prices.  Also, mostly higher stock prices are curbing the safe-haven demand for T-notes.  Losses in T-notes are limited by today’s weaker-than-expected U.S. industrial production report.

The dollar index (DXY00) this morning is up +1.00%.  The dollar is seeing strength as the yen tumbled after the BOJ maintained its ultra-easy policies following today’s policy meeting. Also, the dollar garnered support today on comments from Fed Chair Powell, who said, “the Fed’s strong commitment to its price-stability mandate contributes to the widespread confidence in the dollar as a store of value.”

EUR/USD (^EURUSD) is down -0.63% today.  Dollar strength today is weighing on the euro.  Also, Thursday’s pledge from ECB President Lagarde to curb the rise in borrowing costs is weighing on the euro.   Lagarde said the ECB would implement a new mechanism that may be triggered if European bond spreads widen beyond certain thresholds or if market movements exceed a certain speed.

Hawkish comments today from ECB Governing Council member Knot were supportive of the euro when he said several 50 bp increases in interest rates by the ECB could be needed if inflation worsens.

USD/JPY (^USDJPY) today is up +1.96%.  USD/JPY today is sharply higher and just below Wednesday’s 23-year high. The yen tumbled today when the BOJ maintained its ultra-easy monetary stance after today’s policy meeting. Losses in the yen accelerated today as the BOJ boosted QE when it announced that it would continue to buy cheapest-to-deliver 10-year JGB bonds for an extended time.

The BOJ, in an 8-1 vote, maintained its policy balance rate at -0.1% and kept the 10-year JGB yield target at about 0%.

BOJ Governor Kuroda said the BOJ is not considering raising the upper limit on the 10-year JGB yield ceiling target range, and any tightening of monetary policy would add downward pressure on the economy.

August gold (GCQ22) this morning is down -2.2 (-0.12%), and July silver (SIN22) is down -0.115 (-0.53%).  Precious metals today are moderately lower.  The strength in the dollar today is undercutting metals prices.  Also, higher T-note yields today are weighing on gold prices, and the weaker-than-expected U.S. manufacturing report signals reduced demand for industrial metals that is bearish for silver prices.

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