Stocks Soar as Weak U.S. Economic News Pushes T-note Yields Lower

What you need to know…

The S&P 500 Index ($SPX) (SPY) this morning is up +1.65%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +1.86%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +1.10%. 

Stocks this morning are moving higher on a sharp decline in T-note yields.  The 10-year T-note yield is down sharply by -20.8 bp at a 1-week low of 3.621%. Also, a rally in energy stocks is pushing the overall market higher, with crude prices up more than +6% at a 1-week high. Stocks extended their gains this morning after T-note yields fell even further on weaker-than-expected U.S. economic news.

December S&P 500 futures initially fell to a 1-3/4 nearest-futures low, and Dec Nasdaq futures dropped to a 2-year low in overnight trading, after Tesla plunged more than -6% when it announced that its Q3 worldwide auto deliveries fell short of expectations, citing logistics and shipment issues. 

The U.S. Sep ISM manufacturing index fell -1.9 to a 2-1/4 year low of 50.9, weaker than expectations of 52.0.

U.S. Aug construction spending fell -0.7% m/m, weaker than expectations of -0.3% m/m and the biggest decline in 1-1/2 years.

Today’s stock movers…

Energy stocks and energy service providers are sharply higher, with the price of WTI crude oil up more than +6% at a 1-week high.  Marathon Oil is up more than +8% to lead gainers in the S&P 500.  Also, Devon Energy (DVN), Diamondback Energy (FANG), and Haliburton (HAL) are up more than +6%.  In addition,  ConocoPhillips (COP), APA Corp (APA), Schlumberger (SLB), and Baker Hughes (BKR) are all up more than +5%.  Finally, Chevron (CVX) is up more than +4% to lead gainers in the Dow Jones Industrials.

A decline in T-note yields today is boosting chip stocks.  Lam Research (LRCX) is up more than +5% to lead gainers in the Nasdaq 100.  Also, Micron Technology (MU) and ASML Holding NV (ASML) are up more than +4%.  In addition, Applied Materials (AMAT), Intel (INTC), Advanced Micro Devices (AMD), Marvell Technology (MRVL), and NXP Semiconductors (NXPI) are up more than +3%. 

CF Industries (CF) is up more than +4% today after RBC Capital Markets upgraded the stock to outperform from sector perform, citing a “favorable nitrogen market outlook and attractive energy spreads between the U.S. and international markets that may persist long-term.”

Southwestern Energy (SWN) is up more than +5% today after Truist Securities upgraded the stock to buy from hold on a potential boost from strong gas prices.

Wells Fargo (WFC) is up more than +2% today after Goldman Sachs upgraded the stock to buy from neutral.

Tesla (TSLA) is down more than -6% today to lead losers in the S&P 50 and Nasdaq 100 after it said it delivered 343,830 cars worldwide in Q3, below the consensus of 358,000.  Other electric vehicle makers are also falling on the news, with Rivian Automotive (RIVN) down more than -4% and Lucid Group (LCID) down more than -3%. 

DocuSign (DOCU) is down more than -3% today after Morgan Stanley downgraded the stock to underweight from equal weight.

Across the markets…

Dec 10-year T-notes (ZNZ22) today are up +1-2/32 points, and the 10-year T-note yield is down -20.8 bp at 3.621%.  Dec T-notes rallied to a 1-week high this morning, and the 10-year T-note yield dropped to a 1-week low of 3.619%.  Weaker than expected U.S. economic news on Sep ISM manufacturing and Aug construction spending is bullish for T-note prices.  Also, lower European government bond yields today are providing carry-over support to T-note prices after the 10-year German bund yield slid to a 1-week low of 1.940% and the 10-year UK gilt yield fell t a 1-week low of 3.851%.

The dollar index (DXY00) this morning is down -0.08%.   The dollar is modestly lower today from a rally in stocks that curbs the dollar’s liquidity demand.  Also, lower T-note note yields today have weakened the dollar’s interest rate differentials.

EUR/USD (^EURUSD) today is up +0.24%.  The euro today rebounded from early losses and is moderately higher. Dollar weakness today gave EUR/USD a boost along with hawkish comments from ECB Governing Council member Vasle who said the ECB is likely to raise interest rates at its “next few” meetings.  EUR/USD today initially moved lower on economic concerns after the Eurozone Sep global manufacturing PMI was revised downward to a 2-1/4 year low. 

ECB Governing Council member Vasle said the ECB is likely to raise interest rates at its “next few” meetings as it confronts “double digit” inflation.  He also hinted the ECB would raise interest rates by 75 bp for the second straight meeting when he added, “we will most probably retain the pace” of tightening.

The Eurozone Sep global manufacturing PMI was revised downward by -0.1 to 48.4 from the previously reported 48.5, the steepest pace of contraction in 2-1/4 years.

USD/JPY (^USDJPY) today is down -0.15%.  The yen today recovered from a 1-week low against the dollar and posted moderate gains after T-note yields slumped.  The yen today initially fell to a 1-week low on comments from Japanese Prime Minister Kishida, who said he would “press ahead with strengthening an economic structure that capitalizes on the weak yen.” Economic concerns also weighed on the yen after today’s economic news showed the Japan Q3 Tankan survey large-manufacturing business conditions index unexpectedly fell, and the Japan Sep Jibun bank manufacturing PMI was revised downward.

The Japan Q3 Tankan survey large-manufacturing business conditions index unexpectedly fell -1 to 8, weaker than expectations of an increase to 10.

The Japan Sep Jibun bank manufacturing PMI was revised downward by -0.2 to a 20-month low of 50.8 from the previously reported 51.0.

Japan Sep vehicle sales rose +17.8% y/y, the largest increase in 15 months.

October gold (GCV2) is up +17.1 (+1.02%), and December silver (SIZ22) is up +1.366 (+7.17%).  Precious metals this morning are moving higher, with gold at a 1-week high and silver prices up sharply at a 1-1/2 month high.  Precious metals are higher on a weaker dollar and lower global bond yields.  Rising risks in financial markets are also boosting safe-have demand for precious metals after Credit Suisse Group AG today fell to a record low on concern about its financial stability.  Gold prices continue to be undercut by fund liquidation as long positions in gold ETF’s dropped to a 2-1/4 year low last Friday. 

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