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Markets Today: Stocks Jump and Bond Yields Tumble on Easier U.S. Inflation

Barchart - Wed Jul 12, 2023

Morning Markets

September E-Mini S&P 500 futures (ESU23) this morning are up +0.75% at a 15-month high, and Sep Nasdaq 100 E-Mini futures (NQU23) are up +0.98%.

U.S. stock index futures this morning are moving higher after U.S. consumer prices in June slowed more than expected.  While today’s CPI report is unlikely to dissuade the Fed from raising interest rates by 25 bp later this month, it increases the chances that this month’s rate hike could be the last rate hike in this cycle. 

The June U.S. CPI eased to +3.0% y/y from +4.0% y/y in May, better than expectations of +3.1% y/y and the smallest increase in 2-1/4 years.  Also, the June CPI ex-food and energy eased to +4.8% y/y from +5.3% y/y in May, better than expectations of +5.0% y/y and the smallest increase in 1-1/2 years.

The markets are discounting the odds at 88% 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 +35 bp higher than the current effective federal funds rate of 5.07%.

Global bond yields are lower.  The 10-year T-note yield is down -7.1 bp at 3.900%.  The 10-year German bund yield is down -2.9 bp at 2.620%.  The 10-year UK Gilt yield is down -7.7 bp at 4.585%.  

Overseas stock markets are mixed.  The Euro Stoxx 50 is up +0.99%.  China’s Shanghai Composite Index today closed down -0.78%.  Japan’s Nikkei Stock Index today closed down -0.81%.

The Euro Stoxx 50 today is moderately higher.  Strength in technology stocks is leading the overall market higher, with Nordic Semiconductor up more than +5% after reporting better-than-expected Q2 Ebitda and Q3 margin forecast.  Bank stocks are also moving higher today after the UK’s eight largest lenders all passed the BOE’s latest stress tests.  European stocks extended their gains after bond yields fell when U.S. Jun CPI rose less than expected.  On the negative side, airlines and travel stocks are lower after Deutsche Bank downgraded IAG and Air France-KLM to hold from buy. 

China’s Shanghai Composite closed moderately lower. Stocks gave up early gains and turned lower on concern that government steps to revive the economy were insufficient. Chinese bank stocks also fell after the country’s regulator asked banks to respond to a bearish research report on the sector from Goldman Sachs, which cut ratings on some Chinese lenders and lowered price targets on others.  The Shanghai Composite initially moved higher today on strength in technology stocks on optimism that government regulators were ending their crackdown on the sector.  Also, Chinese stocks garnered support on signs of stronger credit growth after today’s aggregate financing and Jun new yuan loan reports rose more than expected.

China Jun aggregate financing, the broadest measure of credit growth, rose +4.22 trillion yuan, stronger than expectations of +3.10 trillion yuan.  Also, Jun new yuan loans rose +3.05 trillion yuan, stronger than expectations of +2.32 trillion yuan.

Japan’s Nikkei Stock Index today closed moderately lower and posted a 1-month low.  Higher government bond yields have fueled a rally in the Japanese yen today to a 4-week high against the dollar, which sparked the selling of exporter stocks and weighed on the overall market.  Speculation about a possible change in policy from the BOJ has pushed government bond yields higher, with the 10-year JGB bond yield climbing to a 2-1/2 month high today at 0.478%.  Weaker-than-expected economic news also weighed on stocks after Japan's May core machine orders unexpectedly fell by the most in 15 months. 

Japan’s Jun PPI eased to +4.1% y/y from +5.1% y/y in May, better than expectations of +4.4% and the smallest increase in more than two years.

Japan May core machine orders unexpectedly fell -7.6% m/m, weaker than expectations of +1.0% m/m and the biggest decline in 15 months.

Pre-Market U.S. Stock Movers

Domino’s Pizza (DPZ) surged more than +11% in pre-market trading on an agreement allowing U.S. customers to order Domino’s products through the Uber Eats marketplace.

TJX Cos (TJX) gained more than +1% in pre-market trading after Loop Capital Markets upgraded the stock to buy from hold.

STMicroelectronics NV (STM) climbed more than +3% in pre-market trading after Jeffries upgraded the stock to hold from underperform.

Stellantis NV (STLA) rose more than +2% in pre-market trading after Bank of America Global Research upgraded the stock to buy from neutral. 

Fidelity National Information Services (FIS) gained more than +1% in pre-market trading after Atlantic Equities upgraded the stock to overweight from neutral with a price target of $70.

Coty Inc (COTY) rose more than +3% in pre-market trading after the Wall Street Journal reported that Kim Kardashian is in talks to buy back the minority stake in the company she sold three years ago.

APA Corp (APA) fell more than -1% in pre-market trading after Goldman Sachs downgraded the stock to sell from neutral. 

Arcadia Healthcare (ACHC) dropped more than -2% in pre-market trading after Bloomberg Intelligence said a New Mexico jury’s $485 million award in one patent abuse case and two more cases pending could limit the company’s plans to accelerate its expansion strategy. 

Elevance Health (ELV) fell more than -1% in pre-market trading after Wolfe Research downgraded the stock to peer perform from outperform.

Atlassian Corp (TEAM) slid more than -% in pre-market trading on signs of insider selling after an SEC filing showed co-CEO and c-founder Farquhar sold $1.42 million of shares on Monday.

Today’s U.S. Earnings Reports (7/12/2023)

AngioDynamics Inc (ANGO), MillerKnoll Inc (MLKN), Pure Cycle Corp (PCYO), Urban One Inc (UONEK).



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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.

Provided Content: Content provided by Barchart. The Globe and Mail was not involved, and material was not reviewed prior to publication.