Stocks Mostly Higher on Optimism Ahead of Wednesday’s U.S. CPI Report

Rich Asplund - Barchart - Tue Jul 11, 2023

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is up +0.14%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.25%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.02%.

Stocks this morning are mostly higher. The broader market is higher today on optimism that U.S. inflation news this week will show a continued easing of price pressures. Also, U.S. stocks have carryover support from a rally in Chinese stocks after authorities in China stepped up relief measures for property developers. In addition, positive comments from New York Fed President Williams lifted stocks when he said he "doesn't have a recession in his forecast."

Hopes for an easing of price pressures are supportive for stocks and bonds. Wednesday’s U.S. Jun CPI report is expected to show prices eased to +3.1% y/y from +4.0 y/y in May, the slowest pace in 2-1/4 years. Also, Jun CPI ex-food and energy is expected to ease to +5.0% y/y from +5.3% y/y in May.

New York Fed President Williams said today that he "doesn't have a recession in his forecast" but has lowered his growth forecasts "a little bit" for next year as some of the tightening of monetary policy and some effects of credit tightening will weigh on demand in 2024.

The markets are discounting the odds at 89% for a +25 bp rate hike at the next FOMC meeting on July 25-26. The markets are anticipating a peak funds rate of 5.42% by November, which is +34 bp higher than the current effective federal funds rate of 5.08%.

Global bond yields are mixed. The 10-year T-note yield is down -1.2 bp at 3.982%. The 10-year German bund yield is up +0.4 bp at 2.644%. The 10-year UK Gilt yield is up +0.8 bp at 4.647%.

Overseas stock markets are higher. The Euro Stoxx 50 is up +0.70%. China’s Shanghai Composite Index today closed up +0.55%. Japan’s Nikkei Stock Index today closed up +0.04%.

Today’s stock movers…

Newell Brands (NWL) is up more than +10% to lead gainers in the S&P 500 after Canaccord Genuity initiated coverage of the stock with a buy recommendation and a price target of $13.

HP Inc (HPQ) is up more than +6% after it announced it would increase its previously announced cash tender offer to purchase more than $1 billion of its outstanding debt.

Generac Holdings (GNRC) is up more than +4% after Argus upgraded the stock to buy from hold, saying the shares are currently undervalued.

3M (MMM) is up more than +3% to lead gainers in the Dow Jones Industrials after Bank of America upgraded the stock to neutral from underperform.

Salesforce Inc (CRM) is up more than +3% after announcing it will increase its list prices by an average of 9% across its Sales Cloud, Marketing Cloud, and Tableau services effective next month.

VeriSign (VRSN) is down more than -5% to lead losers in the S&P 500 after Baird downgraded the stock to neutral from outperform.

Globalfoundries (GFS) is down more than -3% to lead losers in the Nasdaq 100 after it said that CFO Stone will depart the company effective today.

Microsoft (MSFT) is down more than -1% to lead losers in the Dow Jones Industrials after Wells Fargo said the special rebalancing of the Nasdaq 100 Stock Index on July 25 would lead to selling pressure in the stock as it is downsized in the index.

Netflix (NFLX) is down more than -1% after Evercore ISI said the stock is the large-cap internet stock with the most risk to earnings when it reports Q2 results on July 19, as buy-side expectations are almost certainly higher than the street.”

Microchip stocks are falling today and undercutting technology stocks. Applied Materials (AMAT), Advanced Micro Devices (AMD), and Lam Research (LRCX) are down more than -2%. Also, Qualcomm (QCOM), ASML Holding NV (ASML), and KLA Corp (KLAC) are down more than -1%.

Across the markets…

September 10-year T-notes (ZNU23) today are up +3 ticks, and the 10-year T-note yield is down -2.4 bp at 3.970%. Sep T-notes today are moderately higher on the outlook for a friendly U.S. Jun CPI report on Wednesday. The consensus is for consumer prices in June to ease to +3.1% y/y from +4.0% y/y in May. T-notes also garnered support today on comments from New York Fed President Williams, who said he lowered his growth forecasts "a little bit" for next year as some of the tightening of monetary policy and some effects of credit tightening will weigh on demand in 2024. Gains are limited by supply pressures as the Treasury today will auction $40 billion 3-year T-notes as part of this week’s $90 billion auction package of T-notes and T-bonds.

The dollar index (DXY00) today is down by -0.09% and fell to a 2-month low. The dollar is under pressure today from lower T-note yields. Also, the yuan strengthened against the dollar today after China signaled more economic support measures. Strength in stocks today also reduced the liquidity demand for the dollar.

EUR/USD (^EURUSD) today is down by -0.08%. The euro fell back from a 2-month high today and is modestly lower. Eurozone economic concerns weighed on EUR/USD after today’s news showed the German Jul ZEW survey expectations of economic growth fell more than expected to a 7-month low.

The German Jul ZEW survey expectations of economic growth fell -6.2 to a 7-month low of 14.7, weaker than expectations of -10.6.

USD/JPY (^USDJPY) is down -0.42%. The yen today is moving higher for the fourth consecutive session and posted a 3-week high against the dollar. A decline in T-note yields today is supporting the yen. Also, Monday’s jump in Japanese inflation expectations spurred short covering in the yen. The increase in Japan 10-year breakeven inflation rate to an 8-1/2 year high of 1.16% on Monday may prompt the BOJ as soon as this month’s policy meeting to signal it could soon curb its highly stimulative policies.

Today’s Japanese economic news was bearish for the yen after Japan Jun machine tool orders fell -21.7% y/y, the sixth consecutive month that orders have declined.

August gold (GCQ3) today is up +9.2 (+0.48%), and Sep silver (SIU23) is up +0.035 (+0.15%). Precious metals prices this morning are moderately higher. Gold and silver posted 2-week highs today after the dollar index fell to a 2-month low. Also, lower T-note yields today are bullish for metals prices. In addition, metals are gaining on expectations that Wednesday’s U.S. Jun CPI will show consumer prices continue to ease, taking the pressure off the Fed to raise interest rates. Gains in gold are limited by ongoing fund liquidation of gold as holdings in gold ETFs fell to a 3-3/4 month low Monday. Also, strength in stocks today has reduced the safe-haven demand for precious metals.

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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. For more information please view the Barchart Disclosure Policy here.