Stocks Sink as the 10-year T-note Yield Climbs Back Above 3%

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is down -1.72%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -1.44%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -2.13%. 

Stocks this morning are sharply lower, with the S&P 500 and Dow Jones Industrials falling to 1-1/2 week lows and the Nasdaq 100 dropping to a 2-1/2 week low.  Expectations that Fed Chair Powell at the Fed’s annual symposium at Jackson Hole, Wyoming, later this week will reaffirm the Fed’s hawkish policy stance is pushing up T-note yields today and weighing on stocks.  The 10-year T-note yield climbed to a 1-month high today at 3.007%.

Losses in technology stocks are weighing on the overall market today after the 10-year T-note yield jumped to a 1-month high.  Also, semiconductor companies that focus on memory-related chips are under pressure today after Citigroup warned the companies could see a risk of weaker pricing trends in the second half of this year.   

A positive factor for stocks today was a recovery in Chinese stocks as the Shanghai Composite rebounded from a 1-week low and closed higher after Chinese banks cut their benchmark lending rates and the government took steps to address the ailing property market.

Today’s U.S. economic data supported stocks after the July Chicago Fed national activity index unexpectedly rose +0.52 to 0.27, stronger than expectations of a decline to -0.25.

China cut its 5-year loan prime rate by 15 bp to 4.30%, a bigger cut than expectations of 4.35%.  The 1-year loan prime rate was cut by 5 bp to 3.65%, a smaller cut than expectations of 3.60%.

Bloomberg reported that The People's Bank of China (PBOC) and China's Ministry of Finance would offer 200 billion yuan ($29.3 billion) in special loans to ensure that stalled housing projects are completed. 

Today’s stock movers…

An increase in the 10-year T-note yield to a 1-month high today is undercutting technology stocks. Atlassian Group Plc (TEAM) is down more than -5%.  Also, Datadog (DDOG) is down more than -4%.  In addition, Nvidia (NVDA), Amzon.com (AMZN), Meta Platforms (META), and Crowdstrike Holdings (CRWD) are down more than -3%.

Semiconductor companies that focus on memory-related chips are falling in pre-market trading after Citigroup warned the companies could see a risk of weaker pricing trends in the second half of this year.  ASML Holding NV (ASML), Align Technology (ALGN), and Lam Research (LRCX) are down more than -3%.  Also, Micron Technology (MU), Western Digital (WDC), Marvell Technology (MRVL), Applied Materials (AMAT), and Microchip Technology (MCHP) are down more than -2%.

Concerns that rising interest rates will lead to a recession are undercutting airlines and cruise stocks today.  United Airlines Holdings (UAL), Carnival (CCL), and Royal Caribbean Cruises (RCL) are down more than -4%.  Also, Norwegian Cruise Line Holdings (NCLH), Alaska Air Group (ALK), American Airlines Group (AAL), and Delta Airlines (DAL) are down more than -3%.  In addition, Southwest Airlines (LUV) is down more than -2%.   

Netflix (NFLX) is down more than -5% today to lead losers in the S&P 500 after CFRA cut its recommendation on the stock to sell from hold, saying the stock may underperform the S&P 500 Index for the rest of the year. 

Form Motor (F) is down more than -5% today after the company lost a Georgia court case late last Friday and was ordered to pay more than $1.7 billion over a rollover accident that killed a Georgia couple.

Elevance Health (ELV) is up more than +1% today after SVB Financial raised its recommendation on the stock to outperform from market perform.

U.S.-listed Chinese stocks are climbing today after Chinese banks lowered their benchmark lending rates and Chinese authorities stepped up support for the beleaguered property market.  Pinduoduo (PDD) is up more than +4% today to lead gainers in the Nasdaq 100.  Also, NetEase (NTES) and Baidu (BIDU) are up more than +2%, and JD.com (JD) is up more than +1%.

Across the markets…

Sep 10-year T-notes (ZNU22) today are down -3 ticks, and the 10-year T-note yield is up +1.5 bp at 2.987%.  Sep T-notes this morning fell to a 1-month low, and the 10-year T-note yield climbed to a 1-month high of 3.007%.  T-notes are under pressure on expectations for the Fed to maintain its aggressive rate-hake policy stance.  Fed Chair Powell may emphasize the Fed’s hawkishness when he speaks at the Fed’s annual symposium late this week at Jackson Hole, Wyoming.  A jump in European government bond yields also weighs on T-note prices.  The 10-year German bund yield today rose to a 1-month high of 1.300%, and the UK 10-year gilt yield jumped to a 2-month high at 2.524%.

The dollar index (DXY00) today is up by +0.32% and posted a new 5-week high. A slump in stocks today has boosted the liquidity demand for the dollar.   Also, weakness in the Chinese yuan is giving the dollar a boost as central bank divergence is undercutting the yuan, which fell to a 23-month low against the dollar today after Chinese banks lowered their prime lending rates.  In addition, expectations for the Fed to maintain its aggressive rate-hike path are boosting T-note yields and supporting the dollar. 

EUR/USD (^EURUSD) today is down -0.67% and fell to a new 5-week low. The euro is under pressure from dollar strength and from concern that the ongoing energy crisis in Europe will throw the Eurozone economy into recession.  European nat-gas prices are up sharply today by +12% at a 5-1/2 month high after Russia said it would stop gas flows through the Nord Stream pipeline for three days of maintenance on August 31, ramping up fears of a prolonged supply halt.  German Bundesbank Chief Nagel warned today that Germany would face a recession if the energy situation escalates.

German Bundesbank Chief Nagel said the ECB should continue raising interest rates to combat inflation and that Germany’s inflation rate this autumn could hit 10%. 

USD/JPY (^USDJPY) today is up +0.32% at a 3-1/2 week high.  Higher T-note yields today are undercutting the yen as the 10-year T-note climbed to a 1-month high.  Also, central bank divergence continues to undercut the yen with the Fed in the middle of a rate-hike cycle while the BOJ maintains QE and record-low interest rates.

October gold (GCV22) is down -16.2 (-0.92%), and September silver (SIU22) is down -0.384 (-2.01%).  Precious metals this morning are moderately lower and dropped to 3-1/2 week lows.  A rally in the dollar index today to a 5-week high is undercutting metals prices.  Gold prices are also weighed down today from rising global bond yields. In addition, expectations that Fed Chair Powell at the Fed’s annual Jackson Hole symposium late this week will signal the Fed is maintaining its aggressive rate-hike policy is weighing on metals prices.  Gold has some support as a store of value after Chinese banks today lowered their benchmark lending rates.

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