U.S. Stocks Rally as T-note Yield Eases

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is up +0.80%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.81%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +1.08%. 

Stocks are seeing support from strong overseas stock markets and today’s -5.3 bp decline in the 10-year T-note yield to 2.774%.  The 10-year T-note yield today is easing a bit after last Friday’s +14 bp surge to a 2-week high of 2.827% on the stronger-than-expected U.S. payroll report. Tech stocks are leading the market higher with today’s +1.08% rally in the Nasdaq 100 index. 

Taiwan tensions continue after China’s military today announced new military exercises around Taiwan focused on antisubmarine and air-to-sea strikes.  The previous 4-day set of exercises ended Sunday.  China is keeping up the pressure on Taiwan after House Speaker Pelosi’s visit to Taiwan last week.  However, Reuters reports that China today did not announce specific locations for its new exercises, and there were no new “notices to airmen” (NOTAM) from China.  Reuters reports that civilian air traffic around Taiwan is slowly returning to normal despite the new Chinese drills.  Bloomberg reports that shipping around Taiwan is also returning to normal.

The Senate on Sunday passed the Inflation Reduction Act, which is focused on $430 billion of climate and health care spending, and also contains a reduction in the federal budget deficit.  The House is expected to pass the bill within the next two weeks and send it to President Biden for his signature.

The markets are watching the situation in Ukraine as warnings grow about a potential nuclear disaster after Russia launched shells near Ukraine’s Zaporizhzhia nuclear power plant.  The power plant is occupied by Russian troops and run by Ukrainian technicians, but the Russian military reportedly shelled the area in recent days.

The markets are looking ahead to Wednesday’s U.S. CPI report for indications of whether inflation is peaking.  A stronger-than-expected CPI report on Wednesday could solidify expectations for another large Fed rate hike at its next meeting in September, which were sparked by last Friday’s much stronger-than-expected U.S. July payroll report of +528,000 (vs expectations of +250,000).   The consensus is for Wednesday’s July CPI report to show an increase of +0.2% m/m and +8.7% y/y, down from June’s report of +1.3% m/m and +9.1% y /y.  The July core CPI is expected at +0.5% m/m and +6.1%, compared with June’s report of +0.7% m/m and +5.9% y/y.

The Euro Stoxx 50 today is up +1.18%.  China’s Shanghai Composite index today closed up +0.31%. Japan’s Nikkei index today closed up +0.26%.

Today’s stock movers…

Renewable energy stocks are seeing support today after the Senate on Sunday passed the Inflation Reduction Act with $369 billion of new climate spending.  Electric vehicle makers are sharply higher.  Tesla (TSLA) is up +5.0%,  Rivian Automotive (RIVN) is up +7.6%, and Lucid Group (LCID) is up +6.2%.  Hydrogen and fuel cell company Plug Power (PLUG)  is up +3.8%.

Solar companies are trading higher on the favorable provisions in the Inflation Reduction Act bill, which center on a decade-long extension of investment tax credits, production tax credits, and residential solar tax credits.  First Solar (FSLR) is up +6.8, Sunrun (RUN) is up +6.5%, and Array Technologies (ARRY) is up +4.9%. 

Crypto stocks seeing support with Bitcoin (^BTCUSD) up +3.9%, reaching a 2-month high and rising above $24,000.  Coinbase (COIN) is sharply higher by +7.0%.  Marathon Digital (MARA) is up +5.2%, Riot Blockchain (RIOT) is up +8.8%.

Energy stocks and energy service providers are mostly lower today, undercut by today’s -0.4% sell-off in September WTI crude oil futures prices.  Exxon Mobil (XOM) is down -0.48%, Marathon Oil (MRO) is down -1.62%, ConocoPhillips (PSX) is down -0.74%, and Schlumberger (SLB) is down -0.35%.

Nvidia (NVDA) is down -7% today after a disappointing revenue forecast due to the gaming slump. 

Bed, Bath & Beyond (BBBY) is up +45% today on meme-trading frenzy. BBBYT soared by a total of 78% in the eight sessions through last Friday as it caught on as a meme stock.  In other meme trading stocks, AMC Entertainment (AMC) is up +13% today.

Palantir (PLTR) is down -12.9% after its revenue guidance missed the consensus.

BioNTech (BNTX) is down -10.5% after an earnings miss.

Across the markets…

Sep 10-year T-notes (ZNU22) today are up +15 ticks, and the 10-year T-note yield is down -5.3 bp at 2.774%.  T-note prices are seeing support from today’s -0.40% sell-off in crude oil prices, which is undercutting inflation expectations, although the 10-year breakeven yield today is little changed at 2.47%.

T-note prices are seeing some short-covering after last Friday’s -1-11.5/32 point plunge on the stronger than expected payroll report. The report led to a sharp 17 bp jump in the Dec 2022 federal funds futures contract last Friday to an effective yield of 3.485%, implying an overall Fed rate hike of another +116 bp by year-end from the current effective federal funds rate of 2.33%.  The next FOMC meeting is on Sep 20-21.

T-note prices this week will be navigating supply pressures as the Treasury auctions $42 billion of 3-year T-notes on Tuesday, $35 billion of 10-year T-notes on Wednesday, and $21 billion of 30-year T-bonds on Thursday.

The dollar index (DXY00) today is down -0.41% on some long liquidation pressure after last Friday’s +0.88% rally.  The dollar index is falling back on today’s mild decline in the U.S. 10-year T-note yield.  The dollar is also lower on reduced liquidity demand with today’s rally in stocks.

EUR/USD (^EURUSD) today is up by +0.31%.  USD/JPY (^USDJPY) is down -0.32%.  The yen is seeing some continued repatriation demand from Japanese investors as Taiwan tensions continue with a new round of Chinese military drills around Taiwan.

October gold (GCV22) this morning is up +14.1 (+0.79%), and September silver (SIU22) is up +0.833 (+4.20%).  Precious metal prices are seeing support from today’s decline in the dollar index and continued Taiwan tensions.  Silver is seeing continued support from last Friday’s strong U.S. payroll report, which had positive implications for U.S. economic growth. 

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