Stocks Mixed as Market Sentiment Remains Cautious

What you need to know…

The S&P 500 Index ($SPX) (SPY) this morning is up +0.09%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.12%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.53%. 

Stocks this morning are mixed.  Stocks garnered support today after monthly news from ADP showed U.S. companies increased headcount well below expectations, which is dovish for Fed policy. Also, social-media stocks are climbing today after Snap said it was cutting 20% of its payroll to rein in costs.

Higher T-note yields are negative for stocks, as the 10-year T-note yield this morning climbed to a new 2-month high of 3.161%.  T-note yields rose as record inflation in the Eurozone pushed the 10-year German bund yield to a 2-month high.  Eurozone Aug CPI climbed at a record pace of +9.1% y/y. Also, hawkish comments this morning from Cleveland Fed President Mester weighed on stocks when she said, “in her view, it will be necessary to move the fed funds rate up to somewhat above 4% by early next year and hold it there.” 

The U.S. Aug ADP employment change rose +132,000, weaker than expectations of +300,000 and the smallest increase in 19 months.

The U.S. Aug MNI Chicago PMI unexpectedly rose +0.1 to 52.2, stronger than expectations of no change at 52.1.

Cleveland Fed President Mester said, “her current view is that it will be necessary to move the fed funds rate up to somewhat above 4% by early next year and hold it there” and that she does not anticipate the Fed cutting the fed funds rate target next year.

The China Aug manufacturing PMI rose +0.4 to 49.4, stronger than expectations of 49.2.  The China Aug non-manufacturing PMI fell -1.2 to 52.6, stronger than expectations of 52.3.

Today’s stock movers…

Social-media stocks are climbing today after Snap said it would cut its workforce by 20% and scale back investments in select businesses as it attempts to rein in costs.  Snap (SNAP) is up more than +13%, and Pinterest (PINS) is up more than +7%.  Also, Meta Platforms (META) is up more than +5% to lead gainers in the S&P 500. 

Netflix (NFLX) is up more than +4% today after Ad Age reported that Snap’s chief business officer Jeremi Gorman and Vice President of Americas Peter Naylor would begin their role in the development of Netflix’s global advertising strategy in September.

PayPal (PYPL) is up more than +4% today after Bank of America upgraded the stock to buy from neutral. 

Amgen (AMGN) is up more than +1% to lead gainers in the Dow Jones Industrials after it said its Lumakras drug met the endpoint of progression-free survival for patients with KRAS G12C-mutated non-small cell lung cancer in a Phase 3 trial.

U.S.-listed Chinese stocks are climbing after today’s economic reports showed that Chinese manufacturing and service sector activity was stronger-than-expected in August.  Pinduoduo (PDD) is up more than +7% to lead gainers in the Nasdaq 100.  Also, Baidu (BIDU) is up more than +7%, and NetEase (NTES) is up more than +5%.  In addition, Alibaba Group Holding (BABA) and JD.com (JD) are up more than +4%.

PVH Corp (PVH) is down more than -6% today to lead losers in the S&P 500 after reporting Q2 revenue of $2.13 billion, weaker than the consensus of $2.21 billion, and said it sees Q3 revenue down -4% to -5%.

HP Inc (HPQ) is down more than -5% today after reporting Q3 net revenue of $14.7 billion, weaker than the consensus of $15.6 billion, and cut its full-year adjusted EPS forecast to $4.02-$4/12 from a prior forecast of $4.24-$4.38, below the consensus of $4.30.

Semiconductor chip stocks are weaker today after Citigroup warned that chip stocks might fall another 25% as profit estimates slide.  Advanced Micro Devices (AMD), Nvidia (NVDA), and Marvel Technology (MRVL) are down more than -2%.  Also, Qualcomm (QCOM), Intel (INTC), Applied Materials (AMAT), Broadcom (AVGO), NXP Semiconductors (NXPI), and Microchip Technology (MCHP) are down more than -1%. 

Across the markets…

Sep 10-year T-notes (ZNU22) today are down -2 ticks, and the 10-year T-note yield is up +1.9 bp at 3.121%.  Sep T-notes this morning fell to a fresh 2-month low, and the 10-year T-note yield rose to a new 2-month high of 3.161%.  Record high inflation in the Eurozone pushed up European government bond yields and weighed on T-note prices.  The 10-year UK gilt yield soared to an 8-1/2 year high today at 2.873%, and the 10-year German bund yield climbed to a 2-month high of 1.586%.  T-note prices recovered from their worst levels on the weaker-than-expected Aug ADP employment change.

The dollar index (DXY00) this morning is up +0.18%.  This dollar is moderately higher this morning on weakness in European currencies.  Inflation worries are hammering the British Pound as GBP/USD dropped to a new 2-1/4 year low after the British Retail Consortium reported shop price inflation accelerated to a record 5.1% in August.  Also, EUR/USD is weaker after Eurozone Aug CPI rose a record +9.1% y/y.   The dollar fell back from its best levels after the U.S. Aug ADP employment change rose less than expected.

EUR/USD (^EURUSD) today is down -0.01%.  The euro today is slightly lower after today’s news showed record inflation in the Eurozone.  However, hawkish ECB comments and rising bund yields sparked some short covering in the euro. ECB Governing Council member and Bundesbank President Nagel said the ECB needs a “strong” interest rate hike in September, which helped push the 10-year German bund yield up to a 2-month high, strengthening the euro’s interest rate differentials. 

Eurozone Aug CPI rose a record +9.1% y/y, stronger than expectations of+9.0% y/y.  The Aug core CPI rose a record +4.3% y/y, stronger than expectations of +4.1% y/y.

ECB Governing Council member and Bundesbank President Nagel said he sees a risk that high inflation will persist even longer and that the ECB needs a “strong” interest rate hike in September.

USD/JPY (^USDJPY) today is up +0.04%.  Higher T-note yields today are bearish for the yen.  However, losses in the yen are limited due signs of strength in Japan’s economy after today’s economic news on industrial production, retail sales, and consumer confidence came in stronger than expected.

The Japan Aug consumer confidence index unexpectedly rose +2.3 to 32.5, stronger than expectations of a decline to 29.5.

Japan July industrial production unexpectedly rose +1.0% m/m, stronger than expectations of a decline of -0.5% m/m. 

Japan July retail sales rose +0.8% m/m, stronger than expectations of +0.3% m/m.

October gold (GCV22) is down -8.1 (-0.47%), and September silver (SIU22) is down -0.264 (-1.45%).  Precious metals this morning are moderately lower, with gold dropping to a 1-1/4 month low and silver falling to a 2-year low.  A stronger dollar today is weighing on metals prices, along with strength in stocks, which curbs the safe-haven demand for precious metals.  Also, higher global bond yields today are undercutting gold prices. In addition, continued liquidation from funds weighs on gold prices after long gold positions in ETFs fell to a 6-month low Tuesday. 

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