Stocks Fall as Central Banks Remain Hawkish
What you need to know…
The S&P 500 Index ($SPX) (SPY) today is down -1.09%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -1.06%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.57%.
Stocks today extended Thursday’s rout on concern that the resolve of the Fed and ECB to keep raising interest rates to fight inflation will tip the global economy into recession. Also, recession concerns have knocked WTI crude oil prices down more than -2% today, weighing on energy stocks.
Stocks maintained moderate losses after this morning’s economic news from S&P Global showed U.S. manufacturing activity contracted more than expected. Today's quarterly triple-witching expiration of equity derivatives could spark increased stock volatility.
Higher global interest rates are bearish for stocks. Hawkish ECB and Fed comments today pushed the 10-year German bund yield to a 1-1/4 month high of 2.212%. That weighed on other global government bond markets as the 10-year UK gilt yield climbed to a 1-month high of 3.389%, and the 10-year T-note yield is up +7.4 bp at 3.521%.
On the positive side, Adobe is up more than +5% today after reporting stronger-than-expected adjusted Q4 EPS. Also, Meta Platforms is up more than +3% after JPMorgan Chase upgraded the stock to overweight from neutral.
New York Fed President Williams said that while inflation has shown some signs of slowing, a tight labor market and other factors are likely to keep price pressures elevated and warrant high-interest rates for some time.
The U.S. Dec S&P Global manufacturing PMI unexpectedly fell -1.5 to 46.2, weaker than expectations of an increase to 47.8 and the steepest pace of contraction in 2 years.
Today’s stock movers…
Prologis (PLD) is down more than -6% to lead losers in the S&P 500 after JPMorgan Chase downgraded the stock to neutral from overweight.
Darden Restaurants (DRI) is down more than -4% after reporting Q2 restaurant margins, including marketing, of 16.6%, weaker than the consensus of 17.3%.
Accenture (ACN) is down more than -4% after reporting Q1 bookings of $16.22 billion, below the consensus of $17.27 billion.
Invitation Homes (INVH) is down more than -4% after JPMorgan Chase downgraded the stock to neutral from overweight.
Lincoln National (LNC) is down more than -4% after Jeffries downgraded the stock to underperform from hold.
Equity Residential (EQR) is down more than -4% after BMO Capital Markets downgraded the stock to underperform from market perform.
Extra Space Storage (EXR) is down more than -3% after JPMorgan Chase downgraded the stock to neutral from overweight.
Adobe (ADBE) is up more than +5% to lead gainers in the S&P 500 and Nasdaq 100 after reporting Q4 adjusted EPS of $3.60, better than the consensus of $3.50.
Meta Platforms (META) is up more than +4% after JPMorgan Chase upgraded the stock to overweight from neutral.
Synopsys (SNPS) is up more than +2%, and Cadence Design Systems (CDNS) is up more than +1% after Bank of America Global Research upgraded the stocks to buy from neutral.
Trip.com Group Ltd (TCOM) is up more than +1% after UBS upgraded the stock to buy from neutral.
Across the markets…
March 10-year T-notes (ZNH23) today are down -15 ticks, and the 10-year T-note yield is up +7.4 bp at 3.521%. March T-notes this morning are under pressure on hawkish comments from New York Fed President Williams, who said a tight U.S labor market warrants higher interest rates. Also, a jump in European government bond yields is undercutting T-note prices as the 10-year German bund yield rose to a 1-1/4 month high of 2.212%, and the 10-year UK gilt yield rose to a 1-month high of 3.389%.
The dollar index (DXY00) this morning is down by -0.16%. The dollar this morning gave up an early advance and turned lower after today’s economic news from S&P Global showed U.S. manufacturing activity contracted more than expected. The dollar this morning initially moved higher on comments from New York Fed President Williams, who signaled he favors higher interest rates.
EUR/USD (^EURUSD) today is up by +0.01% and is moderately below Thursday’s 6-month high. The euro garnered support today on comments from ECB Governing Council members Muller and Rehn, who both advocated for higher ECB interest rates. EUR/USD also found support on today’s economic news that showed the Eurozone Dec S&P Global manufacturing PMI rose more than expected.
ECB Governing Council member Muller said interest rates would likely rise above levels anticipated by markets as the economic slowdown isn't enough to curb inflation as needed.
ECB Governing Council member Rehn said interest rates in the Eurozone "will still have to rise significantly" to bring inflation down to the ECB's target, and the ECB is likely to raise rates by 50 bp at the Feb and March meetings.
The Eurozone Dec S&P Global manufacturing PMI rose +0.7 to 47.8, stronger than expectations of no change at 47.1. Also, the Eurozone Dec S&P Global composite PMI rose +1.0 to 48.8, stronger than expectations of +0.1 to 47.9.
USD/JPY (^USDJPY) this morning is down by -0.63%. The yen is strengthening today as a slump in global equity markets has sparked some safe-haven buying of the yen. The yen also has carry-over support from Wednesday’s report that said the BOJ sees the possibility of having a policy review next year. Higher T-note yields and weak Japanese manufacturing news today is limiting gains in the yen.
The Japan Dec Jibun Bank manufacturing PMI fell -0.2 to 48.8, the steepest pace of contraction in more than 2 years.
February gold (GCG3) this morning is up +13.1 (+0.73%), and March silver (SIH23) is up +0.040 (+0.17%). Precious metals prices this morning are moderately higher. Today’s selloff in global equity markets boosts safe-haven demand for precious metals. Higher global bond yields today are limiting gains in gold. Also, hawkish Fed and ECB comments today signal higher interest rates in the future, which is bearish for metals prices.
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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.
Provided Content: Content provided by Barchart. The Globe and Mail was not involved, and material was not reviewed prior to publication.
