Stocks Erase Early Gains on Higher T-Note Yields

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is down by -0.10%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.08%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.29%. 

The S&P 500, Dow Jones Industrials, and Nasdaq 100 fell back from 2-week highs this morning and are modestly lower.  Higher T-note yields are weighing on stocks, with the 10-year T-note yield up +7.0 bp at 3.20%.  Stock prices today initially opened higher on carry-over support from a rally in China’s Shanghai Composite to a 3-1/2 month high.  Also, better-than-expected U.S. economic data today on May capital goods orders and May pending home sales were supportive for stocks.

Morgan Stanley said the S&P 500 could rise another 5-7% before resuming losses as a decline in bond yields and oil prices ease some worries around runaway inflation.

The Bank for International Settlements said, "the risk of stagflation looms over the global economy as the threat of a new inflation era coincides with a weaker outlook for growth and elevated financial vulnerabilities."

U.S. May capital goods new orders nondefense ex-aircraft & parts rose +0.5% m/m, stronger than expectations of +0.2% m/m.

U.S. May pending home sales unexpectedly rose +0.7% m/m, stronger than expectations of -4.9% m/m and the first increase in seven months. 

U.S. Jun Dallas Fed manufacturing outlook general business activity unexpectedly fell -10.4 to a 2-year low of -17.7, weaker than expectations of an increase to -6.5.

Today’s stock movers…

Cruise line operators are falling today, led by a -5% drop in Carnival (CCL) after Wells Fargo Securities cut its price target on the stock to $13 from $21.  Royal Caribbean Cruises (RCL) are down more than -5%, and Norwegian Cruise Line Holdings (NCLH) are down more than -4%.   

Boeing (BA) is down more than -3% to lead losers in the Dow Jones Industrials after the Australian Broadcasting Corp. (ABC) said Boeing’s 737 Max jets experienced at least six emergencies during flight and were grounded dozens of times in the year after they were cleared to fly following two fatal crashes.  According to ABC, the U.S. government will announce a new audit assessing how Boeing oversees the manufacturing of the Max jet. 

Etsy (ETSY) is down more than -5% today to lead losers in the S&P 500 after Needham downgraded the stock to hold from buy.

Energy stocks and energy service providers are moving higher today.  Devon Energy (DVN) is up more than +5% to lead gainers in the S&P 500.  Also, Valero Energy (VLO) is up more than +3%, and Occidental Petroleum (OXY), Marathon Oil (MRO), Haliburton (HAL), Baker Hughes (BKR), and Phillips 66 (PSX) are up more than +2%.

U.S.-listed Chinese stocks are climbing today on optimism in Chinese stocks after the Shanghai Composite rallied to a 3-1/2 month high.  JD.com (JD) is up more than +4% to lead gainers in the Nasdaq 100.  Also, Pinduoduo (PDD) and NetEase (NTES) are up more than +3%, and Alibaba Group Holding (BABA) and Baidu (BIDU) are up more than +2%. 

Across the markets…

Sep 10-year T-notes (ZNU22) this morning are down -15 ticks, and the 10-year T-note yield is up +7.0 bp at 3.200%.  Better-than-expected U.S. economic data today weighed on T-note prices.  Also, supply pressures are bearish for T-notes as the Treasury will auction $46 billion 2-year T-notes and $47 billion 5-year T-notes today as part of this week’s $133 billion Treasury auction package.

The dollar index (DXY00) this morning is down -0.21% at a 1-week low.  Losses in the dollar are limited due to higher T-note yields and expectations that end-of-month and quarter rebalancing flows are seen as supporting the dollar.  Today’s U.S. economic data was mixed for the dollar.

EUR/USD (^EURUSD) is up +0.27% today.  Weakness in the dollar today is supporting gains in EUR/USD.  Also, short covering is pushing the euro higher ahead of Tuesday’s comments from ECB President Lagarde a the ECB Forum on Central Banking in Sintra, Portugal.

USD/JPY (^USDJPY) today is down -0.13%.  USD/JPY today is moving lower as the yen strengthens on speculation that a peak in inflation will reduce the need for aggressive Fed rate hikes. Losses in USD/JPY today are limited as higher T-note yields weigh on the yen.

August gold (GCQ22) this morning is down -0.9 (-0.05%), and July silver (SIN22) is up +0.160 (+0.76%).  Precious metals today are mixed.  A slide in the dollar index today to a 1-week low is supportive for metals prices.  Silver also gained after a larger-than-expected increase in U.S. May capital goods orders signaled stronger demand for industrial metals.  However, higher global bond yields and stock prices today weigh on gold prices today.

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