What you need to know…
The S&P 500 Index ($SPX) (SPY) today is up +0.45%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.39%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.35%.
Stocks this morning extended Tuesday’s sharp gains, with the S&P 500 and Dow Jones Industrials posting 2-1/2 month highs and the Nasdaq 100 posting a 3-3/4 month high. Stocks are moving higher after today’s U.S. economic news reinforced speculation the Fed can achieve a soft landing and that price pressures continue to ease. Higher bond yields today are limiting the upside in stocks.
U.S. Oct PPI final demand eased to +1.3% y/y from +2.2% y/y in Sep, weaker than expectations of +1.9% y/y. Also, Oct PPI ex-food and energy eased to +2.4% y/y, from +2.7% y/y in Sep, weaker than expectations of no change at +2.7% y/y and the smallest year-on-year increase in 2-3/4 years.
U.S. Oct retail sales fell -0.1% m/m, a smaller decline than expectations of -0.3% m/m. Also, Oct retail sales ex-autos unexpectedly rose +0.1% m/m, stronger than expectations of a -0.2% m/m decline.
The U.S. Nov Empire manufacturing survey general business conditions rose +13.7 to a 7-month high of 9.1, stronger than expectations of -3.0.
Stocks also have support on reduced chances of a U.S. government shutdown after the House Tuesday night approved a temporary government funding bill that will fund some parts of the government through Jan 19 and others through Feb 2. The legislation now goes to the Senate, where it is expected to pass.
Better-than-expected Chinese economic news today supports Chinese growth and global economic prospects after Chinese industrial output last month rose more than expected, and consumer spending improved after China’s Oct retail sales posted a larger-than-expected increase.
On the positive side for stocks, Target is up more than +17% after reporting Q3 adjusted EPS well above the consensus. Also, Catalent is up more than +10% after reporting stronger-than-expected Q1 net revenue and forecasting 2024 net revenue above consensus. In addition, Expedia Group is up more than +6% after Reuters reported that ValueAct Capital Management has taken a stake in the company.
On the negative side, defensive drug makers and healthcare stocks are under pressure with today’s rally in the broader market. Also, TJX Cos is down more than -3% after forecasting Q4 comparable sales below consensus.
The markets are discounting a 0% chance for a +25 bp rate hike at the next FOMC meeting on Dec 12-13 FOMC and a 0% chance for that +25 bp rate hike at the following FOMC meeting on Jan 30-31, 2024. The markets are then discounting a +25% chance for a -25 bp rate cut at the March 19-20, 2024, FOMC meeting and a 74% 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 moved up from a 1-1/2 month low of 4.424% and is up +8.0 bp at 4.527%. The 10-year German bund yield moved up from a 2-month low of 2.567% and is up +2.4 bp at 2.624%. The 10-year UK gilt yield recovered from a 5-1/2 month low of 4.121% and is up +5.3 bp at 4.205%.
China Oct industrial production rose +4.6% y/y, stronger than expectations of +4.5% y/y and the largest increase in 6 months.
China Oct retail sales rose +7.6% y/y, stronger than expectations of +7.0% y/y.
Overseas stock markets are higher. The Euro Stoxx 50 is up +0.54%. China’s Shanghai Composite Index closed up +0.55%. Japan’s Nikkei Stock Index closed up +2.52%.
Today’s stock movers…
Target (TGT) is up more than +17% to lead gainers in the S&P 500 after reporting Q3 adjusted EPS of $2.10, well above the consensus of $1.47. Other big box retailers moved higher on the news, with Dollar General (DG) up more than +5%, Dollar Tree (DLTR) up more than +4%, Best Buy (BBY) up more than +2%, and Walmart (WMT) up nearly +1%.
VF Corp (VFC) is up more than +13% after JPMorgan Chase upgraded the stock to neutral from underweight.
Catalent (CTLT) is up more than +10% after reporting Q1 net revenue of $982 million, stronger than the consensus of $936.2 million, and forecasting 2024 net revenue of $4.30 billion-$4.50 billion, the midpoint above the consensus of $4.36 billion.
Expedia Group (EXPE) is up more than +6% after Reuters reported that ValueAct Capital Management has taken a stake in the company.
U.S.-listed Chinese stocks are moving higher today, led by a +6% jump in JD.com (JD) after it reported Q3 net revenue of 247.70 billion yuan, better than the consensus of 246.59 billion yuan. Also, Baidu (BIDU) and Alibaba Group Holding (BABA) are up more than +3%, and PDD Holdings (PDD) is up more than +2%.
Charles River Laboratories (CRL) is up more than +4% on signs of insider buying after an SEC filing showed CEO Foster bought $1 million of shares on Tuesday.
Generac Holdings (GNRC) is up more than +4% after Bank of America Global Research upgraded the stock to neutral from underperform.
Goodyear Tire & Rubber (GT) is up more than+2% after it said it’s actively pursuing strategic alternatives for its chemical business and its off-the-road equipment tire business.
TJX Cos (TJX) is down more than -3% to lead losers in the S&P 500 after forecasting Q4 comparable sales climbing 3%-4%, the midpoint below the consensus of 3.9%.
Defensive drug makers and healthcare stocks are under pressure with today’s rally in the broader market. Vertex Pharmaceuticals (VRTX) is down more than -3% to lead losers in the Nasdaq 100. Also, McKesson Corp (MCK) and Cigna Group (CI) are down more than -2%. In addition, Merck & Co (MRK) is down more than -1% to lead losers in the Dow Jones Industrials. Finally, Ely Lilly (LLY), Cardinal Health (CAH), and AstraZeneca Plc (AZN) are down more than -1%.
Global-e Online (GLBE) is down more than -24% after reporting Q3 revenue of $133.6 million, weaker than the consensus of $141.3 million, and cutting its full-year revenue forecast to $563 million-$571 million from a previous forecast of $570 million-$596 million, below the consensus of $588 million.
Across the markets…
December 10-year T-notes (ZNZ23) this morning are down -21 ticks, and the 10-year T-note yield is up +8.0 bp at 4.527%. Dec T-note prices this morning are moderately lower after mixed economic news sparked long liquidation pressures after Tuesday’s sharp rally. U.S. retail sales in Oct fell less than expected, and the Nov Empire manufacturing survey general business conditions rose more than expected to a 7-month high. Losses were limited after U.S. Oct producer prices rose less than expected, a dovish factor for Fed policy.
The dollar index (DXY00) today is up by +0.24%. The dollar is moderately higher and found support on better-than-expected U.S. economic news on Oct retail sales and the Nov Empire manufacturing survey. Also, higher T-note yields today are benefiting the dollar. Today’s rally in stocks is cubing liquidity demand for the dollar and is limiting the dollar’s gains.
EUR/USD (^EURUSD) today is down by -0.28%. The euro is moderately lower today on a stronger dollar and weak Eurozone economic news after Eurozone Sep industrial production fell more than expected. The euro is also under pressure after the European Commission today cut its Eurozone 2023 GDP forecast.
Eurozone Sep industrial production fell -1.1% m/m, weaker than expectations of -1.0% m/m.
The European Commission cut its Eurozone 2023 GDP forecast to 0.6% from a September forecast of 0.8%.
USD/JPY (^USDJPY) today is up by +0.45%. The yen today fell back from a 1-week high against the dollar and is moderately lower. A steeper-than-expected pace of contraction in Japan’s Q3 GDP is weighing on the yen. Also, higher T-note yields today are bearish for the yen. In addition, the fall in the 10-year JGB bond yield to a 4-week low today at 0.774% weakened the yen’s interest rate differentials.
Japan's Q3 GDP fell -2.1% (q/q annualized), weaker than expectations of -0.4%. The Q3 deflator rose a record +5.1% y/y, stronger than expectations of +4.8% y/y.
Japan Sep industrial production was revised upward by +0.3 to 0.5% m/m from the initially reported +0.2% m/m.
December gold (GCZ3) today is down -1.6 (-0.08%), and Dec silver (SIZ23) is up +0.218 (+0.94%). Precious metals prices today are mixed, with silver climbing to a 2-week high. A stronger dollar today and higher global bond yields are bearish for precious metals. Also, today’s rally in stocks reduced safe-haven demand for precious metals and is negative for metals prices. However, silver prices found support after China’s Oct industrial production rose more than expected, a positive factor for global growth and industrial metals demand. Also, today’s weaker-than-expected U.S. Oct PPI report shows an easing of price pressures that may prompt the Fed to stop raising interest rates, a supportive factor for precious metals.
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.
