Stocks Retreat on Fed Worries and Higher Global Bond Yields

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is down -0.83%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.59%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -1.26%. 

Stocks this morning are moderately lower.  Concerns that the Fed will keep its aggressive rate hike path are weighing on stock index futures on speculation that this afternoon’s minutes of the July 26-27 FOMC meeting will have a hawkish tilt.  U.S retail sales data this morning was mixed for stocks.

A jump in global bond yields is weighing on technology stocks this morning.  Soaring consumer prices in the UK sparked inflation concerns and pushed up bond yields.  The UK 10-year Gilt yield jumped to a 1-1/2 month high of 2.307% after UK July CPI rose more than expected at the fastest pace in 40 years.  The jump in European bond yields pushed T-note yields higher, and the 10-year T-note yield climbed to a 3-1/2 week high today at 2.906%. 

Strength in Asian equity markets today is a supportive factor for stocks.  China’s Shanghai Composite climbed to a 2-1/2 week high today, and Japan’s Nikkei Stock index posted a 7-1/2 month high on speculation China may boost stimulus measures after Chinese Premier Li Keqiang vowed to "reasonably" step up policy support to stabilize employment, prices and ensure economic growth.

U.S. July retail sales were unchanged m/m, weaker than expectations of +0.1% m/m. However, July retail sales ex-autos unexpectedly rose +0.4% m/m, stronger than expectations for a -0.1% m/m decline.

China's CCTV state television reported that Chinese Premier Li Keqiang asked local officials from six provinces that account for 40% of China's economy to bolster pro-growth measures, including helping to boost consumption and offering more fiscal support via government bond issuance.  He also vowed to "reasonably" step up policy support to stabilize employment, prices and ensure economic growth.

UK July CPI rose +10.1% y/y, stronger than expectations of +9.8% y/y and the fastest pace of increase in 40 years.

Today’s stock movers…

Higher T-note yields today are weighing on technology stocks and the overall market.  Micron Technology (MU) and Microchip Technology (MCHP) are down more than -4%.  Also, Nvidia (NVDA), Okta (OKTA), Marvell Technology (MRVL), Texas Instruments (TXN), Lam Research (LRCX), and Splunk (SPLK) are down more than -3%.  In addition, NXP Semiconductors NV (NXPI), Advanced Micro Devices (AMD), and Illumina (ILMN) are down more than -2%.

Jack Henry & Associates (JKHY) is down more than -8% today to lead losers in the S&P 500 after forecasting 2023 EPS of $5.05-$5.09, weaker than the consensus of $5.22. 

Homebuilders are falling today after the 10-year T-note yield climbed to a 3-1/2 week high, which will push up mortgage rates and may crimp housing demand.  PulteGroup (PHM), Lennar (LEN), Toll Brothers (TOL), and DR Horton (DHI) are all down more than -2%.

Analog Devices (ADI) is down more than -5% today to lead losers in the Nasdaq 100 after CEO Roche said that “economic uncertainty is beginning to impact bookings.”

Target (TGT) is down more than -2% today after reporting Q2 adjusted EPS of 39 cents, well below the consensus of 72 cents. 

Agilent (A) is up more than +6% today to lead gainers in the S&P 500 after reporting Q3 net revenue of $1.72 billion, stronger than the consensus of $1.64 billion.

Lowe’s (LOW) is up more than +2% today after reporting Q2 adjusted EPS of $4.67, better than the consensus of $4.61.

Walmart (WMT) is up more than +1% today to lead gainers in the Dow Jones Industrials after RBC Capital Markets raised its price target on the stock to $151 from $135.

Progressive Corp (PGR) is up more than +2% today after reporting July net premiums written rose +8.3% y/y to $4.93 billion.

Across the markets…

Sep 10-year T-notes (ZNU22) today are down -17 ticks, and the 10-year T-note yield is up +8.4 bp at 2.888%.  Sep T-notes dropped to a 3-1/2 week low today, and the 10-year T-note yield climbed to a 3-1/2 week high of 2.906%.  A slump in European government bonds today is undercutting T-note prices.  A surge in UK July consumer prices to a four-decade high of +10.1% y/y has hammered European bond markets and pushed T-note yields higher. The 10-year UK gilt yields rose to a 1-1/2 month high today at 2.307%, and the 10-year German bund yield rose to a 3-1/2 week high of 1.107%.  Supply pressures are also weighing on T-note prices as the Treasury will auction $25 billion of 20-year T-bonds later today.

The dollar index (DXY00) today is up by +0.18% and is just below Tuesday’s 2-1/2 week high.  A slump in stocks today has sparked liquidity demand for the dollar.  Also, higher T-note yields today are supporting gains in the dollar.  In addition, speculation that this afternoon’s minutes of the July 26-27 FOMC meeting will have a hawkish tilt is also underpinning the dollar

EUR/USD (^EURUSD) today is down -0.10% but remains above Tuesday’s 2-1/2 week low.  Weaker-than-expected Eurozone economic data today on Q2 GDP and Q2 employment is weighing on the euro.  Limiting losses in EUR/USD is higher European government bond yields as the 10-year German bund yield rose to a 3-1/2 week high today, strengthening the euro’s interest rate differentials. 

Eurozone Q2 GDP was revised lower to +0.6% q/q and +3.9% y/y from the previously reported +0.7% q/q and +4.0% y/y.

Eurozone Q2 employment rose +0.3% q/q and +2.4% yy/y, weaker than the +0.6% q/q and +2.9% y/y pace from Q1.

USD/JPY (^USDJPY) today is up +0.72% at a 1-week high.  A jump in T-note yields today is weighing on the yen. Also, a rally in Japan’s Nikkei Stock Index today to a 7-1/2 month high reduced the safe-haven demand for the yen.

Today’s Japanese economic data was mixed for the yen.  On the negative side, Japan June core machine orders rose +0.9% m/m and +6.5% y/y, weaker than expectations of +1.0% q/q and +7.7% y/y.  Conversely, Japanese trade data was bullish for the yen.  Japan July exports rose +19.0% y/y, stronger than expectations of +17.6% y/y.  Also, July imports rose +47.2% y/y, stronger than expectations of +45.5% y/y.

October gold (GCV22) is down -8.0 (-0.45%), and September silver (SIU22) is down -0.385 (-1.92%).  Precious metals this morning are moderately lower, with gold falling to a 2-week low and silver falling to a 1-1/2 week low.   A stronger dollar today is weighing on metals prices.  Also, higher global bond yields today are undercutting gold prices.  In addition, the ongoing liquidation of long gold positions by funds is bearish for gold prices after long gold positions in ETFs fell to a 5-1/2 month low Tuesday.

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