What you need to know…

The S&P 500 Index ($SPX) (SPY) today is up +0.19%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.23%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.05%.

Stocks this morning are modestly higher.  Stocks are wavering between modest gains and losses today and found support from gains in European stocks on signs of easing price pressures in Europe after German consumer prices this month rose less than expected. Also, U.S. Q2 GDP was unexpectedly revised lower, a dovish factor for Fed policy.  The markets are looking forward to comments from Fed Chair Powell and other Fed members later today on the outlook for Fed policy.

Soaring global bond yields are keeping pressure on stock prices as the 10-year T-note yield today climbed to a new 16-year high, and the 10-year German bund yield rose to a new 12-year high.  Speculation that the world’s central banks will keep interest rates higher for longer is undercutting bond prices. 

Stocks are also under pressure as a government shutdown appears imminent on October 1 as House Speaker McCarthy cannot get GOP lawmakers to agree on a temporary spending bill to keep the government open.  Senate Republican leader McConnell is backing a bipartisan plan to avoid a shutdown and has publicly separated himself and Senate Republicans from House Republicans.   

U.S. Q2 GDP was unrevised at +2.1% (annualized q/q), weaker than expectations of an upward revision to +2.2%.  Q2 personal consumption was revised lower to +0.8% from the previously reported +1.7%.

U.S. weekly initial unemployment claims rose +2,000 to 204,000, showing a stronger labor market than expectations of 215,000.  Weekly continuing claims rose +12,000 to 1.670 million, showing a stronger labor market than expectations of 1.675 million.

U.S. Aug pending home sales fell -7.1% m/m, weaker than expectations of -1.0% m/m and the biggest decline in 11 months.

Chicago Fed President Goolsbee said policymakers were at risk of overshooting on interest rates by putting too much emphasis on the idea that steep job losses are needed to curb inflation.

The markets are discounting a 21% chance that the FOMC will raise the funds rate by +25 bp at the next FOMC meeting that ends on November 1, and a 41% chance for that +25 bp rate hike at the following meeting that ends on December 13.  The markets are then expecting the FOMC to begin cutting rates in the second half of 2024 in response to an expected slowdown in the U.S. economy.

U.S. and European bond yields today are moving higher.  The 10-year T-note yield climbed to a 16-year high of 4.686% and is up +3.7 bp at 4.645%.  The 10-year German bund yield rose to a 12-year high of 2.959% and is up +8.2 bp at 2.925%.  The 10-year UK gilt yield rose to a 3-week high of 4.524% and is up +16.3 bp at 4.521%.  

German Sep CPI (EU harmonized) rose +0.2% m/m and +4.3% y/y, weaker than expectations of +0.3% m/m and +4.5% y/y, with the +4.3% y/y gain the smallest annual increase in two years.

Overseas stock markets are mixed.  The Euro Stoxx 50 is up +0.27%.  China’s Shanghai Composite Index closed +0.10%.  Japan’s Nikkei 225 today closed -1.54%.

Today’s stock movers…

Jabil Inc (JBL) is up more than +11% after reporting Q4 core EPS of $2.45, better than the consensus of $2.32.

Palantir (PLTR) is up more than +3% after winning a $250 million AI contract with the U.S. Defense Department. 

Trimble (TRMB) is up more than +2% after AGCO Corp said it will acquire technology assets from Trimble for $2 billion to boost its offerings in the agriculture market.

Huntington Ingalls Industries (HII) is up nearly +1% after JPMorgan Chase upgraded the stock to overweight from neutral with a price target of $247.  

Howmet Aerospace (HWM) is up more than +1% after Deutsche Bank reinstated coverage of the stock with a buy recommendation and a price target of $59.

CarMax (KMX) is down more than -10% to lead losers in the S&P 500 after reporting Q2 EPS of 75 cents, weaker than the consensus of 77 cents.

Workday (WDAY) is down more than -9% to lead losers in the Nasdaq 100 after forecasting annual subscription revenue growth of 17% to 19% over the next three years, below expectations of +20% growth.

Accenture (ACN) is down more than -4% after forecasting 2024 adjusted EPS of $11.97-$12.32, below the consensus of $12.37. 

Micron Technology (MU) is down more than -3% after forecasting a Q4 adjusted per share of -$1.00 to -$1.14, a bigger loss than the consensus of -96 cents per share. 

Johnson Controls International Plc (JCI) is down more than -3% after reporting a cybersecurity incident that caused disruptions in parts of its information technology infrastructure and applications. 

Terex (TEX) is down more than -1% after KeyBanc Capital Markets downgraded the stock to sector weight from overweight.

Across the markets…

December 10-year T-notes (ZNZ23) today are down -3 ticks, and the 10-year T-note yield is up +3.7 bp at 4.645%.  Dec T-notes today slumped to a new 16-year nearest-futures low, and the 10-year T-note yield jumped to a 16-year high of 4.686%. T-notes remain under pressure on speculation the Fed will keep interest rates higher for longer.   Also weighing on T-notes was today’s news that showed U.S. weekly jobless claims rose less than expected, a sign of labor market strength that is hawkish for Fed policy. In addition, supply pressures are bearish for T-notes as the Treasury will auction $37 billion of 7-year T-notes later today to conclude this week’s $158 billion auctions of T-notes and floating-rate notes.

T-notes recovered from their worst levels today after U.S. Q2 GDP was unexpectedly revised downward and from dovish comments from Chicago Fed President Goolsbee, who said policymakers were at risk of overshooting on interest rates. 

The dollar index (DXY00) today is down by -0.33%.  The dollar is under pressure today after U.S. Q2 GDP was unexpectedly revised lower.  Losses in the dollar accelerated on dovish comments from Chicago Fed President Goolsbee, who warned that policymakers were at risk of raising interest rates too much. In addition, strength in the yen today weighed on the dollar after comments from Japanese Finance Minister Suzuki sparked speculation Japan was close to intervening in the currency market to support the yen. 

EUR/USD (^EURUSD) today is up by +0.43%.  Weakness in the dollar today has prompted short covering in the euro. Also, today’s news that showed stronger-than-expected Eurozone Sep economic confidence boosted the euro.  In addition, today’s jump in the 10-year German bund yield to a 12-year high strengthened the euro’s interest rate differentials.   On the negative side was today’s report that showed German Sep consumer prices rose less than expected, a dovish factor for ECB policy. 

Eurozone Sep economic confidence fell -0.3 to 93.3, stronger than expectations of 92.4.

German Sep CPI (EU harmonized) rose +0.2% m/m and +4.3% y/y, weaker than expectations of +0.3% m/m and +4.5% y/y, with the +4.3% y/y gain the smallest annual increase in two years.

USD/JPY (^USDJPY) is down by -0.22%.  The yen today is moderately higher as it recovers from Wednesday’s 11-month low against the dollar.  Short covering emerged in the yen today on comments from Japanese Finance Minister Suzuki, who said authorities will take appropriate responses if there are excessive currency moves.  Also, today’s jump in the 10-year JGB bond yield to a 10-year high of 0.763% strengthened the yen’s interest rate differentials.  The upside for the yen is limited today on rising T-note yields. 

October gold (GCV3) today is down -0.5 (-0.03%), and Dec silver (SIZ23) is up +0.026 (+0.11%). Precious metals prices this morning are mixed, with gold falling to a 6-1/2 month low.  Higher global bond yields today are undercutting precious metals prices. Long liquidation pressures are also weighing down gold prices after long gold holdings in ETFs fell to a 3-1/2 year low on Wednesday.  Silver prices also saw some pressure after U.S. Q2 GDP was revised lower, and after Aug pending home sales fell more than expected, negative factors for industrial metals demand.  On the positive side today is a weaker dollar and dovish comments from Chicago Fed President Goolsbee who said policymakers were at risk of raising interest rates too much.

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