What you need to know…
The S&P 500 Index ($SPX) (SPY) today is down -0.39%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.06%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -1.31%.
Stock investors have turned cautious ahead of tomorrow’s U.S. July CPI report, which will be a key factor for the Fed in determining the size of its rate hike at its next meeting on September 20-21. Stocks are also being undercut by today’s +4 bp rise in the 10-year T-note yield.
The semiconductor sector is leading tech stocks lower due to the post-pandemic fall-out of reduced computer and chip sales and reduced gaming. Micron Technologies (MU) is the latest company to report a disappointing outlook.
Taiwan tensions continue after China today held another day of military drills. Meanwhile, Taiwan today announced its own live-fire artillery drills to demonstrate its ability to defend its island.
Stocks were undercut by today’s news that Q2 U.S. unit labor costs rose +10.8%, stronger than expectations of +9.5% and only modestly below Q1’s revised +12.7%. The high level of labor costs is taking a direct bite out of U.S. corporate earnings. Also, Q2 U.S. productivity fell by -4.6%, illustrating that companies are not getting a bang for their buck from their labor forces. Q1 productivity was revised slightly weaker to -7.4% from -7.3%.
In some positive news for stocks, the July NFIB U.S. small business optimism index in July rose by +0.4 points to 89.9 from June’s 9-year low of 89.5. Small businesses are facing a host of issues such as higher interest rates, high input and labor costs, continued supply chain disruptions, labor shortages, and concern about weaker consumer spending.
Sep WTI crude oil futures prices are up +1.5% on news that the flow of Russian crude oil in pipelines through Ukraine to Hungary, Slovakia, and the Czech Republic was halted last week because sanctions prevented the payment of the transit fee. However, the crude oil flows in the northern leg of the pipeline through Belarus to Poland and Germany were not affected.
The markets are looking ahead to Wednesday’s U.S. CPI report for indications of whether inflation is peaking. A strong CPI report on Wednesday could help solidify expectations for a +75 bp rate hike at the next FOMC meeting in September, which were sparked by last Friday’s much stronger-than-expected U.S. July payroll report of +528,000 (versus 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 CPI in June rose to a 40-year high of +9.1%, but the core CPI of 5.9% is currently 0.6 points below the 40-year peak of +6.5% posted earlier this year in March.
The Euro Stoxx 50 today is down -0.93% on broad weakness in most sectors. China’s Shanghai Composite index today closed up +0.32% despite news of an investigation of the $3 trillion trust industry. The Nikkei index today closed down -0.88% as investors continue to fret about China’s military drills against Taiwan, which resulted in missiles landing in Japan’s economic zone last week.
Today’s stock movers…
Chip stocks are lower again today, led by a -4.3% drop in Micron Technologies (MU). Micron fell after reducing its Q4 revenue guidance on weakening demand. Micron said a “challenging market” means that sales may miss its forecast. Nvidia (NVDA) is down -3.6%, adding to yesterday’s loss of -6.30% on Nvidia’s own guidance downgrade. Advanced Micro Devices (AMD) is down -3.6%, and Intel (INTC) is down -1.1%.
Norwegian Cruise Lines (NCLH) is down -10% after reporting Q2 revenue of $1.19 billion, below the consensus of $1.28 billion. The company reported an adjusted loss of $1.14 per share, larger than the consensus of 82 cents. Royal Caribbean Cruises (RCL) is down -4.7%, and Carnival (CCL) is down -5.4%.
Crypto stocks are being undercut as Bitcoin (^BTCUSD) is down -4.49%, more than giving back yesterday’s +3.46% rally. Coinbase (COIN) is down -7.3%, Marathon Digital (MARA) is down -4.5%, and Riot Blockchain (RIOT) is down -9.1%.
Bausch Health (BHC) is down -4.8% after a disappointing revenue and earnings report.
Across the markets…
Sep 10-year T-notes (ZNU22) today are down -13.5 ticks, and the 10-year T-note yield is up +4.2 bp at 2.799%. T-note prices are being undercut by caution ahead of tomorrow’s CPI report and by today’s small +0.6 bp rise in the 10-year breakeven inflation expectations rate on the +1.5% rally in crude oil prices.
T-note prices are seeing some supply pressure ahead of today’s Treasury sale of $42 billion of 3-year T-notes. The Treasury will then sell $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 -0.33% on continued long liquidation pressure after last Friday’s +0.88% rally. The dollar index is trading lower despite today’s +4 bp rise in the 10-year T-note yield and today’s weakness in stocks.
EUR/USD (^EURUSD) today is up by +0.29%. USD/JPY (^USDJPY) is up +0.04%. Japanese investors continue to closely watch the situation in nearby Taiwan.
October gold (GCV22) this morning is up +7.7 (+0.43%), but September silver (SIU22) is down -0.069 (-0.33%). Gold is seeing support from continued Taiwan tensions and technical buying, with Oct gold today edging to a new 1-month high. Silver today is seeing some long liquidation pressure after yesterday’s sharp +3.89% rally to a 5-week high.
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