What you need to know…
The S&P 500 Index ($SPX) (SPY) today is down -0.07%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.84%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.77%.
Stocks this morning are mixed, with the Dow Jones Industrials posting a 1-3/4 year high and the Nasdaq 100 falling to a 1-1/2 week low. Stocks found support on U.S. economic reports showing that continuing unemployment claims rose to a 2-year high and the Oct core PCE rose less than expected, bolstering expectations that the Fed is done raising interest rates. However, hawkish comments from New York Fed President Williams and San Francisco Fed President Daly pushed bond yields higher and weighed on technology stocks as they dampened speculation the Fed would soon cut interest rates.
Stocks have carryover support today from a rally in the Euro Stoxx 50 to a 3-1/2 month high. European stocks rallied after Eurozone Nov CPI rose less than expected, knocking the 10-year German bund yield down to a 4-1/2 month low and bolstering expectations that the ECB is finished raising interest rates.
On the positive side for stocks, M&A activity is supportive for stocks after AbbVie agreed to acquire ImmunoGen for $10.1 billion. Also, Salesforce is up more than +6% after reporting Q3 adjusted EPS above consensus and raising its 2024 adjusted EPS forecast. In addition, Snowflake is up more than +7% after reporting Q3 revenue above consensus.
On the negative side, Pure Storage is down more than -15% after forecasting 2024 revenue below consensus. Also, Albemarle is down more than -2% as the price of China lithium carbonate sank to a 2-year low. In addition, Ford Motor is down more than -1% after cutting guidance on 2023 adjusted earnings.
U.S. weekly initial unemployment claims rose +7,000 to 218,000, right on expectations. However, weekly continuing claims rose +86,000 to a 2-year high of 1.927 million, showing a weaker labor market than expectations of 1.865 million.
U.S. Oct personal spending rose +0.2% m/m, right on expectations. Oct personal income rose +0.2% m/m, right on expectations.
The U.S. Oct core PCE deflator, the Fed's preferred gauge of inflation, eased to +3.5% y/y from +3.7% y/y in Sep, right on expectations and the smallest increase in 2-1/2 years. The Oct headline deflator eased to +3.0% y/y from +3.4% in September, better than expectations of +3.1% y/y.
The U.S. Nov MNI Chicago PMI rose +11.8 to a 1-1/2 year high of 55.8, stronger than expectations of 46.0.
U.S. Oct pending home sales fell -1.5% m/m and -6.6% y/y, a smaller decline than expectations of -2.0% m/m and -8.8% y/y.
New York Fed President Williams said, "I expect it will be appropriate to maintain a restrictive stance for quite some time to fully restore balance and to bring inflation back to our 2% longer-run goal on a sustained basis."
San Francisco Fed President Daly said interest rates are in a "very good place" to control inflation and talk about rate cuts is "not particularly helpful at the moment."
The markets are discounting a 4% chance for a +25 bp rate hike at the next FOMC meeting on Dec 12-13 FOMC and a 2% chance for that +25 bp rate hike at the following FOMC meeting on Jan 30-31, 2024. The markets are then discounting a 42% chance for a -25 bp rate cut at the March 19-20, 2024, FOMC meeting and a 100% chance for that same -25 bp rate cut at the Apr 30-May 1, 2024, FOMC meeting.
U.S. and European government bond yields today are higher. The 10-year T-note yield is up +6.9 bp at 4.324%. The 10-year German bund yield rebounded from a 4-1/2 month low of 2.395% and is up +3.6 bp at 2.467%. The 10-year UK gilt yield is up +8.0 bp at 4.176%.
The China Nov manufacturing PMI unexpectedly fell -0.1 to a 4-month low of 49.4, weaker than expectations of an increase to 49.8. Also, the Nov non-manufacturing PMI unexpectedly fell -0.4 to an 11-month low of 50.2, weaker than expectations of an increase to 50.9.
Overseas stock markets are higher. The Euro Stoxx 50 is up +0.28%. China’s Shanghai Composite Index closed up +0.26%. Japan’s Nikkei Stock Index closed up +0.50%.
Today’s stock movers…
Salesforce Inc (CRM) is up more than +6% to lead gainers in the S&P 500 and Dow Jones Industrials after reporting Q3 adjusted EPS of $2.11, better than the consensus of $2.06, and raising its 2024 adjusted EPS forecast to $8.18-$8.19 from a previous forecast of $8.04-$8.06, stronger than the consensus of $8.06.
HP Enterprise (HPE) is up more than +2%, adding to Wednesday’s +5% gain after Morgan Stanley upgraded the stock to equal weight from underweight.
Snowflake (SNOW) is up more than +7% after reporting Q3 revenue of $734.2 million, above the consensus of $713.8 million.
Nutanix (NTNX) is up more than +8% after Barclays raised its price target on the stock to $49 from $43, and Morgan Stanley raised its price target to $50 from $38.
Immunogen (IMGN) is up more than +80% after AbbVie agreed to acquire the company for $10.1 billion or $31.26 per share.
Snap (SNAP) is up more than +7% after Jeffries upgraded the stock to buy from hold with a price target of $16.
Pinterest (PINS) is up more than +3% after Jeffries upgraded the stock to buy from hold with a price target of $41.
Albemarle (ALB) is down more than -2% to lead losers in the S&P 500 as the price of China lithium carbonate sank to a 2-year low today.
Lowe’s (LOW) is down more than -2% after Bloomberg Intelligence said it expects the company’s same-store sales will fall -5% this year, a steeper decline than consensus of down as much as -4% due to depressed housing activity and a pullback in discretionary spending.
Pure Storage (PSTG) is down more than -15% after forecasting 2024 revenue of $2.82 billion, weaker than the consensus of $2.96 billion.
Okta (OKTA) is down more than -1%, adding to Wednesday’s -2% loss after Wells Fargo Securities and KeyBanc Capital Markets downgraded the stock to hold-equivalent ratings from overweight.
Ford Motor (F) is down more than -1% after cutting guidance on 2023 adjusted earnings before interest and taxes to $10 billion-$10.5 billion from a July forecast of $11 billion-$12 billion as labor costs jumped from its new contract with UAW.
Higher bond yields today are weighing on chip stocks. As a result, Nvidia (NVDA), Advanced Micro Devices (AMD), Globalfoundries (GFS), Broadcom (AVGO), and ASML Holding NV (ASML) are down more than -1%.
Across the markets…
December 10-year T-notes (ZNZ23) this morning are down -13 ticks, and the 10-year T-note yield is up +6.9 bp at 4.324%. Dec T-note prices this morning are under pressure from strong U.S. economic news and hawkish Fed comments. The Nov MNI Chicago PMI rose more than expected to its strongest level in 1-1/2 years. Also, New York Fed President Williams said he expects monetary policy “to stay restrictive for some time,” San Francisco Fed President Daly said she’s “not thinking” about rate cuts right now.
The dollar index (DXY00) today is up by +0.58%. Hawkish Fed comments today have pushed T-note yields higher and are boosting the dollar. Also, weaker-than-expected Eurozone consumer prices are dovish for ECB policy and weigh on the euro to the dollar’s benefit.
EUR/USD (^EURUSD) today is down by -0.59%. The euro is moving lower today as a weaker-than-expected Eurozone Nov CPI report bolstered expectations that the ECB is done raising interest rates. Also, the easing price pressures show the swap markets have priced in 100% of a -25 bp ECB rate cut by the April 11 ECB meeting, further undercutting the euro.
The Eurozone Nov CPI eased to +2.4% y/y from +2.9% y/y in Oct, better than expectations of +2.7% y/y and the smallest increase in 2-1/3 years. Also, Nov core CPI eased to +3.6% y/y from +4.2% y/y in Oct, better than expectations of +3.9% y/y and the smallest increase in 1-1/2 years.
The German Nov unemployment change rose by +22,000, showing a weaker labor market than expectations of +20,000.
German Oct retail sales rose +1.1% m/m, stronger than expectations +0.4% m/m and the biggest increase in 13 months.
The Italian Nov unemployment rate unexpectedly rose +0.2 to a 6-month high of 7.8%, showing a weaker labor market than expectations of no change at 7.4%.
USD/JPY (^USDJPY) today is up by +0.72%. The yen today is under pressure from a stronger dollar and higher T-note yields. Also, dovish comments today from BOJ board member Nakamura undercut the yen when he said the Japanese economy still needs the BOJ’s yield-curve control program and negative interest rates and “now is not the time” to adjust monetary policy.
Japanese economic news today was mixed for the yen. On the bearish side, Oct retail sales unexpectedly fell -1.6% m/m, weaker than expectations of a +0.4% m/m increase and the biggest decline in 2-1/2 years. Conversely, the Nov consumer confidence index unexpectedly rose +0.4 to 36.1, stronger than expectations of a decline to 35.6. Also, Oct industrial production rose +1.0 % m/m, stronger than expectations of +0.8% m/m and the biggest increase in 4 months.
December gold (GCZ3) today is down -10.4 (-0.51%), and Dec silver (SIZ23) is up +0.053 (+0.21%). Precious metals prices today are mixed. A stronger dollar today is bearish for metals prices. Also, a jump in T-note yields today is negative for precious metals. Gold prices also retreated on hawkish comments from New York Fed President Williams Fed and San Francisco Fed President Daly. Silver prices found support today on stronger-than-expected global economic news that is bullish for industrial metals demand after the U.S. Nov MNI Chicago PMI rose more than expected to a 1-1/2 year high, and Japan Oct industrial production rose more than expected.
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
