Stocks Mixed as Airlines Jump and Energy Stocks Fall on a Plunge in Crude

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is down -0.27%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.13%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.44%. 

U.S. stock indexes this morning are mixed.  The overall market is weighed down on concern a flare-up in Covid infections in China could lead to expanded pandemic restrictions that slow economic activity and lead to supply-chain turmoil.  Also, inflation concerns are fueling long liquidation pressures in stocks ahead of Wednesday’s U.S. consumer price index for June, which is expected to climb to a new 40-year high of +8.8% y/y.

A slump of more than -6% in crude oil prices today is undercutting energy stocks but is also boosting airline stocks.  Cautious comments today from the CEO of ServiceNow weighed on software stocks when he warned about the macroeconomic environment.

The markets remain cautious ahead of the Q2 earnings season that starts this week, which will provide clues about the state of the economy and how companies are navigating inflation and supply constraints.   Major Wall Street banks are expected to begin reporting this week, along with other companies such as Fastenal, Delta, Cintas, and Conagra.

Today’s stock movers…

Energy stocks and energy service companies are under pressure today, with crude prices falling more than -6%.  Diamondback Energy (FANG) is down more than -5%.  Also, Occidental Petroleum (OXY) and Hess Corp (HES) are down more than -4%.  In addition, Valero Energy (VLO), Devon Energy (DVN), Baker Hughes (BKR), Haliburton (HAL), and Marathon Oil (MRO) are down more than -3% 

ServiceNow (NOW) is down more than -9% today to lead losers in the S&P 500 after CEO McDermott gave cautious commentary on the macroeconomic environment, which prompted Stifel to say that the company “is likely” to lower expectations when they report earnings in two weeks.  Other software stocks tumbled on his comments. Atlassian Corp Plc (TEAM) is down more than -8% to lead losers in the Nasdaq 100.  Also, Datadog (DDOG) is down more than -5%, and Crowdstrike Holdings (CRWD) is down more than -4%.

The Gap (GPS) is down nearly -6% today after CEO Syngal was terminated, and the company said it expects rising costs and deepening discounts to erase this quarter’s operating profit.

Airline stocks are pushing higher today after crude prices sank more than -6% and after American Airlines stuck with its forecast for a Q2 sales jump despite rising costs. American Airlines Group (AAL) is up more than +6% to lead gainers in the S&P 500.  Also, United Airlines Holdings (UAL) and Delta Air Lines (DAL) are up more than +4%.  In addition, Alaska Air Group (ALK) and Southwest Airlines (LUV) are up more than +3%. 

Boeing (BA) is up more than +4% today to lead gainers in the Dow Jones Industrials after Air Lease said it has 430 new aircraft on order from Boeing and Airbus set to deliver through 2028.

Across the markets…

Sep 10-year T-notes (ZNU22) this morning are up +19 ticks, and the 10-year T-note yield is down -9.4 bp at 2.899%.  A rally in German bund prices is providing carry-over support to T-notes after the 10-year German bund yield fell to a 5-week low today of 1.092%.  Also, a slide in stocks today has boosted the safe-haven demand for T-notes.  In addition, T-note prices are also seeing support with today’s decline in the 10-year breakeven inflation expectations rate to a 10-1/2 month low of 2.271%. Further gains in T-note prices today may be limited by supply pressures as the Treasury will auction $33 billion of reopened 10-year T-notes later today. 

The dollar index (DXY00) this morning is up by +0.10% and posted a new 20-year high.  The dollar fell back from its best levels today on strength in the yen after Japanese Finance Minister Suzuki warned the Japanese government would take the “appropriate” steps if needed to halt the yen’s plunge.  Also, a recovery in stocks from overnight losses this morning has reduced the liquidity demand for the dollar.

EUR/USD (^EURUSD) is down by -0.01% today and dropped to a new 20-year low.  The euro continues to suffer from the ECB’s dovish monetary policy relative to the Fed. The euro was also under pressure today on a slump in German investor confidence after the German July ZEW survey expectations of economic growth fell to an 11-year low. 

The German July ZEW survey expectations of economic growth fell -25.8 to an 11-year low of -53.8, weaker than expectations of -40.5.

USD/JPY (^USDJPY) today is down -0.57% as it falls back slightly from Monday’s t24-year high.  Jawboning from Japanese Finance Minister Suzuki today sparked short-covering in the yen when he warned that the slump in the yen is causing alarm in the Japanese government and that he’ll take “appropriate measures if necessary” to halt the spiral.

Japan’s Jun PPI eased to +9.2% y/y from +9.3% y/y in May, stronger than expectations of +8.9% y/y.

August gold (GCQ22) this morning is down -6.3 (-0.36%), and September silver (SIU22) is down -0.282 (-1.47%.)  Precious metals this morning are moderately lower, with gold falling to a 9-1/2 month low and silver sliding to a 2-year low.  A rally in the dollar index today to a new 20-year high is undercutting metals prices.  Reduced demand for gold as an inflation hedge is also weighing on gold prices after the U.S. 10-year breakeven inflation rate fell to a 10-1/2 month low today of 2.271%. Silver is also under pressure on concern a jump in Covid infection in China will lead to additional lockdown and restrictions that curb economic activity and weighs on China’s industrial metals demand.

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