Markets Today: Stocks Gain on Lower Bond Yields

Rich Asplund - Barchart - Wed Sep 27, 2023

Morning Markets

December E-Mini S&P 500 futures (ESZ23) are up +0.37%, and the Dec Nasdaq 100 E-Mini futures (NQZ23) are up +0.36%.

Stock index futures this morning are mildly higher as bond yields move lower. The 10-year T-note yield fell back from Tuesday’s 16-year high on dovish comments today from Minneapolis Fed President Kashkari, who said a government shutdown and a prolonged auto strike may require the Fed to do less.

Stocks also have support after Senate Democratic and Republican leaders Tuesday evening agreed on a plan to keep the government open through mid-November and provide $6 billion in assistance to Ukraine. The plan to avert a government shutdown on October 1 still needs to overcome gridlock in the House.

The Mortgage Bankers Association (MBA) reported that U.S mortgage applications fell -1.3% w/w in the week ended September 22. The home purchase sub-index fell -1.5%, and the refinancing sub-index fell -0.9%. The average 30-year fixed rate mortgage rose 10 bp to 7.41%, the highest in 22 years.

U.S. Aug capital goods new orders nondefense ex-aircraft rose +0.9% m/m, stronger than expectations of +0.1% m/m and the biggest increase in 7 months.

Minneapolis Fed President Kashkari said a government shutdown and a prolonged auto strike may slow the U.S. economy, which would mean the Fed "would have to less with monetary policy to bring inflation back down to 2% because the government shutdown or the auto strike may slow the economy for us."

The markets are discounting a 19% 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 lower. The 10-year T-note yield is down -3.3 bp at 4.503%. The 10-year German bund yield is down -2.6 bp at 2.782%. The 10-year UK gilt yield is down -2.8 bp at 4.298%.

Overseas stock markets are higher today. The Euro Stoxx 50 is up +0.11%. China’s Shanghai Composite Index closed +0.16%. Japan’s Nikkei 225 today closed +0.18%.

The Euro Stoxx 50 today is modestly higher on support from a decline in European government bond yields. Strength in retailer stocks is leading the overall market higher, with Hennes & Mauritz AB up more than +5% after reporting better-than-expected Q3 operating profit. Stock gains were limited after German and French consumer confidence gauges fell more than expected. Also, Eurozone credit growth slowed by a record in August.

Reuters reported that five German economic institutes downgraded their German 2023 GDP projection to a contraction of -0.6% from a previous projection of an expansion of +0.3%.

ECB Executive Board member Elderson said interest rates haven't necessarily reached their high point even after a tenth straight hike this month.

Eurozone Aug M3 money supply fell a record -1.3% y/y, weaker than expectations of -1.0% y/y.

The German Oct GfK consumer confidence index fell -0.9 to a 6-month low of -26.5, weaker than expectations of -26.0.

The France Sep consumer confidence indicator fell -2 to a 4-month low of 83, weaker than expectations of 84.

China’s Shanghai Composite Stock Index today closed slightly higher. Chinese stocks found support in today’s economic news that showed China Aug industrial profits rose for the first time in more than a year by the most in 11 months. Weakness in Chinese property developers limited gains in the overall market as the markets brace for further troubles at some distressed builders after policy support failed to drive a sustainable recovery in home sales. There are hopes that the upcoming Golden Week holidays, a typical time of year for strong home purchases that begins Friday, may revive sales momentum. However, a stream of negative headlines this week on distress within the property sector may keep homebuyers away.

China Aug industrial profits rose +17.2% y/y, the biggest increase in 11 months.

Japan’s Nikkei Stock Index today recovered from a 4-week low and closed slightly higher. A rally in exporter stocks lifted the overall market today after the yen tumbled to a new 11-month low against the dollar. Also, a note from Bank of America today boosted Japanese equities as it said higher for longer interest rates in the U.S. that weaken the yen can be “good for Japanese stocks.” In addition, an upward revision to the Japan Jul leading index CI supported stocks. Japanese automakers also rose today on speculation they may become a beneficiary of the strike by autoworkers in the U.S., which is limiting U.S. auto production.

The Japan Jul leading index CI was revised upward by +0.6 to108.2 from the previously reported 107.6.

Pre-Market U.S. Stock Movers

ResMed (RMD) is up more than +2% in pre-market trading, adding to Tuesday’s +3% gain after Goldman Sachs said it sees less impact from weight loss drugs on the obstructive sleep apnea market.

Paychex (PAYX) is up more than +1% in pre-market trading after reporting Q1 adjusted EPS of $11.4, above the consensus of $1.12.

Hollywood-tied stocks are moving higher in pre-market trading after the Screenwriter Union approved a new contract with the studios. Paramount Global (PARA), Netflix (NFLX), Walt Disney (DIS), and Warner Bros Discovery (WBD) are up +1% or more.

Hasbro (HAS) and Mattel (MAT) rose more than +1% in pre-market trading after Morgan Stanley initiated coverage of the stocks with a recommendation of overweight.

Johnson Controls International Plc (JCI) climbed more than +1% in pre-market trading after HSBC upgraded the stock to buy from hold with a price target of $69.

MillerKnoll (MLKN) surged more than +15% in pre-market trading after reporting Q1 net sales of $917.7 million, stronger than the consensus of $896 million.

Levi Strauss & Co (LEVI) gained more than +1% in pre-market trading after Cowen started coverage on the stock with an outperform rating and a $16 price target.

Costco Wholesale (COST) fell more than -2% in pre-market trading despite beating Q4 earnings estimates after the company refrained from commenting on the timing of its membership fee increase, something Morgan Stanley saw as a slight disappointment.

Zions Bancorp (ZION) slid more than -1% in pre-market trading after Morgan Stanley downgraded the stock to underweight from equal weight with a price target of $32.

Charles Schwab (SCHW) dropped more than -1% in pre-market trading after S&P Global Market Intelligence said the company’s deposits fell -31% to $304.79 billion in the year ending June 30.

Earnings Reports (9/27/2023)

Concentrix Corp (CNXC), Duckhorn Portfolio Inc/The (NAPA), DZS Inc (DZSI), EVI Industries Inc (EVI), HB Fuller Co (FUL), Jefferies Financial Group Inc (JEF), Micron Technology Inc (MU), Paychex Inc (PAYX), Presto Automation Inc (PRST), Vitesse Energy Inc (VTS), Worthington Industries Inc (WOR).

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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.