Stocks Decline as T-note Yields Climb on Strong U.S. Economic News

What you need to know…

The S&P 500 Index ($SPX) (SPY) this morning is down -1.10%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.89%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -1.34%. 

Stocks this morning are falling for the third consecutive session, with the S&P 500, Dow Jones Industrials, and the Nasdaq 100 posting 1-month lows.  Better-than-expected U.S. economic reports today on July JOLTS job openings and Aug consumer confidence, along with hawkish comments from Richmond Fed President Barkin, pushed up T-note yields and weighed on stocks.  As a result, the 10-year T-note yield rose to a new 2-month high today of 3.147%.  

Stocks are also under pressure today after Credit Suisse recommended that investors go underweight global equities as the argument for an early dovish pivot by the Fed and other major central banks is now "clearly out the window."  Markets are now confronted with slowing growth, rising recession risks, and elevated inflation, and "the next few months are thus likely going to be painful."   

The U.S. June S&P CoreLogic composite-20 home price index rose +0.44% m/m and +18.65% y/y, weaker than expectations of +0.90% m/m and +19.20% y/y.

The Conference Board U.S. Aug consumer confidence index rose +7.9 to 103.2, stronger than expectations of 98.0.

U.S. July JOLTS job openings unexpectedly rose +199,000 to 11.239 million, showing a stronger labor market than expectations of a decline to 10.375 million.

Richmond Fed President Barkin said interest rates will need to be restrictive to control inflation, and "the Fed is committed to returning inflation to its 2% target, and it will do what it takes to get there."

Today’s stock movers…

Large-cap technology stocks are under pressure today from rising T-note yields as the 10-year T-note yield climbed to a new 2-month high of 3.147%.  Marvel Technology (MRVL) and Advanced Micro Devices (AMD) are down more than -3%.  Also, Amazon.com (AMZN), Nvidia (NVDA), Qualcomm (QCOM), Micron Technology (MU), Broadcom (AVGO), Analog Devices (ADI), and Applied Materials (AMAT) are all down more than -2%. 

A more than -4% slump in WTI crude prices today is undercutting energy stocks and energy service providers. Haliburton (HAL) is down more than -5% to lead losers in the S&P 500.  Also, Occidental Petroleum (OXY), Marathon Oil (MRO), Diamondback Energy (FANG), Schlumberger (SLB), Valero Energy (VLO), and Baker Hughes (BKR) are down more than -4%.  In addition,  Exxon Mobil (XOM) and Devon Energy (DVN) are down more than -3%. 

Lucid Group (LCID) is down more than -5% today after filing for the potential sale of up to $8 billion of mixed securities, which may include common stock, by the company.

U.S.-listed Chinese stocks tumbled today after Reuters reported that Taiwan’s military fired warning shots at a Chinese drone.  Baidu (BIDU) is down more than -7% to lead losers in the Nasdaq 100. Also,  Alibaba Group Holding (BABA) is down more than -2%, and Pinduoduo (PDD) and JD.com (JD) are down more than -1%.

Best Buy (BBY) is up more than +3% today to lead gainers in the S&P 500 after reporting Q2 adjusted EPS of $1.54, better than the consensus of $1.35. 

Workday (WDAY) is up more than +0.1% to lead gainers in the Nasdaq 100 as 11 analysts have changed their price targets on the stock by an average of +6.1% since the company reported quarterly earnings last Thursday. 

Across the markets…

Sep 10-year T-notes (ZNU22) today are down -4 ticks, and the 10-year T-note yield is up +2.8 bp at 3.131%.  Sep T-notes this morning are moderately lower and just above Monday’s 2-month, while the 10-year T-note yield rose to a new 2-month high of 3.144%.  Stronger-than-expected U.S. economic news is weighing on T-note prices today, along with hawkish comments from Richmond Fed President Barkin.  However, a decline in inflation expectations limits losses in T-note prices after the 10-year breakeven inflation rate fell to a 1-week low today at 2.549%. 

The dollar index (DXY00) this morning is up +0.09%.  This morning, the dollar recovered from early losses and moved higher as better-than-expected U.S economic news pushed T-note yields higher, strengthening the dollar’s interest rate differentials.  Weakness in stocks today is also boosting the liquidity demand for the dollar. 

EUR/USD (^EURUSD) today is down -0.06%.  The euro today gave up an early advance and turned lower as the dollar strengthened.  Also, a decline in Eurozone Aug economic confidence to a 1-1/2 year low Is undercutting the euro.  EUR/USD today initially posted moderate gains on hawkish ECB rhetoric and record German inflation.  German Aug CPI rose a record +8.8% y/y, which is hawkish for ECB policy.  The euro also garnered support today from falling nat-gas prices that ease concerns about an energy crisis after European nat-gas prices dropped to a 1-week low. 

Eurozone Aug economic confidence fell -1.3 to a 1-1/2 year low of 97.6, weaker than expectations of 98.0. 

German Aug CPI (EU harmonized) rose a record +8.8% y/y, up from +8.5% in July.

ECB comments today were hawkish for monetary policy and supportive of EUR/USD.  ECB Chief Economist Lane said the ECB needs a "steady pace" of interest rate increases in fighting record inflation to minimize negative consequences.  Also, ECB Governing Council member Vasle said, "we haven't seen the highest numbers for inflation in the Eurozone," and he expects inflation to peak next quarter before subsiding in the first half of 2023.

USD/JPY (^USDJPY) today is up +0.14%.  The yen today gave up early gains and turned lower as T-note yields moved higher.  The yen today initially posted moderate gains on positive Japanese economic news after the Japan July job-to-applicant ratio unexpectedly rose +0.02 to a 2-1/4 year high of 1.29, showing a stronger labor market than expectations of 1.27. 

October gold (GCV22) is down -14.7 (-0.84%), and September silver (SIU22) is down -0.397 (-2.14%).  Precious metals this morning are moderately lower, with silver falling to a 1-1/4 month low.  Hawkish central bank comments today signal higher interest rates that are bearish for gold. Also, continued liquidation from funds weighs on gold prices after long gold positions in ETFs fell to a 6-month low Monday. Higher global bond yields today and a stronger dollar are also bearish for precious metals. 

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