Stocks Mixed as Broader Market Finds Support on Lower Bond Yields

Rich Asplund - Barchart - Mon Jul 10, 2023

What you need to know…

The S&P 500 Index ($SPX) (SPY) today is up +0.09%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.42%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.14%.

Stocks this morning are mixed, with the Nasdaq 100 falling to a 2-week low. Lower T-note yields today are supporting modest gains in the broader market. Also, signs that China will extend policies to support its property market may boost Chinese growth and is positive for global growth prospects.

Gains in stocks are muted today on negative carryover from last Friday when the monthly U.S. Jun payrolls report showed wage pressures strengthened, which bolstered expectations for the Fed to hike rates at its meeting later this month.

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 -2.2 bp to 4.040%. The 10-year German bund yield climbed to a 4-month high of 2.679% and is up +1.4 bp at 2.651%. The 10-year UK Gilt yield is up +1.2 bp at 4.662%.

Signs that China will extend policy measures to help its ailing property market are supportive of global growth prospects and stocks. A joint statement from the PBOC and Financial Regulatory Administration today said that Chinese financial institutions would be encouraged to negotiate with real estate firms to extend outstanding loans in order to spur the delivery of homes under construction. Also, some outstanding loans, including trust loans due before 2024, will be given a one-year repayment extension.

Overseas stock markets are mixed. The Euro Stoxx 50 is up +0.47%. China’s Shanghai Composite Index today closed up +0.22%. Japan’s Nikkei Stock Index today closed down -0.61%.

Today’s stock movers…

Icahn Enterprises (IEP) is up more than +18% after the Wall Street Journal reported that Carl Icahn finalized amended agreements with banks that untied his personal loans from the trading price of his company’s shares.

Helen of Troy (HELE) is up more than +15% after reporting Q1 net sales of $474.7 million, better than expectations of $465.4 million.

Shockwave Medical (SWAV) is up more than +8% after Morgan Stanley upgraded the stock to overweight from neutral with a price target of $335.

Invesco Ltd (IVZ) is up more than +3% after investors added $3.09 billion to Invesco exchange-traded funds the week ended July 7, more than any other U.S. ETF-sponsored funds.

FMC Corp (FMC) is down more than -13% to lead losers in the S&P 500 after cutting its full-year revenue forecast to $5.20 billion-$5.40 billion from a prior forecast of $6.08 billion-$6.22 billion. Other producers of agriculture products were also weaker on the news. Corteva (CTVA) is down more than -4%. Also, Mosaic (MOS) and CF Industries Holdings (CF) are down more than -2%. In addition, Scott’s Miracle-Gro (SMG) is down more than -1%.

Microsoft (MSFT) is down more than -2% to lead losers in the Dow Jones Industrials after Phillip Securities downgraded the stock to neutral from accumulate.

MercadoLibre (MELI) is down more than -6% to led losers in the Nasdaq 100 after Bank of America downgraded the stock to neutral from buy.

Ball Corp (BALL) is down more than -2% after Bank of America Global Research downgraded the stock to neutral from buy.

Amcor Plc (AMCR) is down more than -2% after Bank of America Global Research downgraded the stock to underperform from buy.

Across the markets…

September 10-year T-notes (ZNU23) today are up +6 ticks, and the 10-year T-note yield is down -2.2 bp at 4.040%. Sep T-notes today recovered from early losses and are slightly higher on some mild short covering. Gains are limited on negative carryover from last Friday when the monthly U.S. Jun payrolls report showed higher-than-expected wage pressures, which bolsters the case for the Fed to raise the fed funds target range by 25 bp at the July 25-26 FOMC meeting. Also, an increase in inflation expectations is bearish for T-notes after the 10-year breakeven inflation rate rose to a 1-1/2 month high today at 2.289%.

The dollar index (DXY00) today fell is up by +0.02%. The dollar today recovered from a 2-week low and is slightly higher. Weakness in the yuan is supporting modest gains in the dollar after weaker-than-expected China June CPI and PPI reports signal deflation pressures and bolster the outlook for China to boost yuan negative stimulus measures. Lower T-note yields today are limiting gains in the dollar.

EUR/USD (^EURUSD) today is up +0.07% and posted a 2-week high. Dollar weakness today is supporting modest gains in the euro. Also, the 10-year German bund yield jump to a 4-month high today of 2.679% has strengthened the euro’s interest rate differentials. A bearish factor for EUR/USD was today’s economic news that showed the Eurozone Jul Sentix investor confidence index fell more than expected to an 8-month low.

The Eurozone Jul Sentix investor confidence index fell -5.5 to an 8-month low of -22.5, weaker than expectations of -17.9.

USD/JPY (^USDJPY) is down -0.37%. The yen today recovered from overnight losses and climbed to a 2-week high against the dollar. A decline in T-note yields today is supporting the yen. Also, an increase in Japanese inflation expectations pushed bond yields higher and boosted the yen after the Japan 10-year breakeven inflation rate climbed to an 8-1/2 year high of 1.16%. The rise in inflation expectations pushed the 10-year JGB bond yield today up to a 2-1/2 month high of 0.468%, benefiting the yen.

Today’s Japanese economic news was bearish for the yen after the Japan Jun Eco watchers survey outlook fell -1.6 to a 4-month low of 52.8, weaker than expectations of 54.2.

August gold (GCQ3) today is down -5.7 (-0.29%), and Sep silver (SIU23) is down -0.074 (-0.32%). Precious metals prices this morning are slightly lower. A slightly stronger dollar today is weighing on metals prices. Also, ongoing fund liquidation of gold is a bearish factor for prices as holdings in gold ETFs fell to a 3-3/4 month low last Friday. Lower T-note yields today are limiting declines in metals prices. Also, an increase in inflation expectations has boosted demand for gold as an inflation hedge after the 10-year U.S. breakeven inflation rate rose to a 1-1/2 month high today at 2.289%, and the Japan 10-year breakeven inflation rate climbed to an 8-1/2 year high of 1.16%.

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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.