What you need to know…

The S&P 500 Index ($SPX) (SPY) today is up +0.23%, the Dow Jones Industrials Index ($DOWI) (DIA) is up +0.46%, and the Nasdaq 100 Index ($IUXX) (QQQ) is up +0.03%.

Stocks this morning are moderately higher on expectations for the FOMC to announce a pause in its rate hike campaign when its 2-day meeting ends later this afternoon.  However, gains in stocks are limited by the outlook for the Fed to say it could hike interest rates again if warranted. 

U.S. stocks have some carryover support today from gains in European stocks on signs of slowing price pressures in Europe and the UK after German producer prices in August posted a record decline and UK consumer prices last month unexpectedly eased. 

Stocks are awaiting the conclusion of the 2-day FOMC meeting later today.  The markets are fully expecting the FOMC this week to leave its funds rate target unchanged at 5.25/5.50%.  However, the markets are expecting the FOMC to maintain a hawkish bias and keep in play the possibility of one more rate hike later this year.

Specifically, the markets are discounting a 30% chance that the FOMC will raise the funds rate by +25 bp at the next FOMC meeting that ends on November 1, and a 45% 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 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 -3.2 bp at 4.327%. The 10-year German bund yield is down -2.5 bp at 2.713%.  The 10-year UK gilt yield fell to a 2-3/4 month low of 4.238% and is down -9.6 bp at 4.244%. 

The Mortgage Bankers Association reported that the MBA mortgage applications index rose +5.4% w/w for the week ended September 15, the largest increase in 3 months.  The home purchase sub-index rose +2.3% w/w and the refinancing sub-index rose +13.2% w/w. 

Bank of America today raised its year-end price target for the S&P 500 to 4,600 from a previous target of 4,300, saying that indicators on the macrocycle, including valuations and positioning, are flashing bullish signals.

UK July CPI eased to +6.7% y/y, weaker than expectations of an increase to +7.0% y/y and the smallest increase in 1-1/2 years.  Also, UK July core CPI eased to +6.2% y/y from +6.9% y/y in July, weaker than expectations of +6.8% y/y.

Overseas stock markets are mixed today.  The Euro Stoxx 50 is up +0.80%.  China’s Shanghai Composite Index closed -0.52%.  Japan’s Nikkei 225 today closed -0.66%.

Today’s stock movers…

Western Digital (WDC) is up more than +6% to lead gainers in the S&P 500 after BNP Paribas Exane upgraded the stock to outperform from neutral with a price target of $58. 

Textron (TXT) is up more than +4% after announcing a fleet agreement for the option for NetJets to purchase up to 1,500 additional Cessna Citations business jets over the next 15 years..

Boston Scientific (BSX) is up more than +2% after Barclays said the company at its investor day conference that It expects organic growth of 8%-10% in its long-range plans.   

International Business Machines (IBM) is up more than +2% to lead gainers in the Dow Jones Industrials after RBC Capital Markets initiated coverage of the stock with a recommendation of outperform and a price target of $188.

Lululemon Athletica (LULU) is up more than +2% to lead gainers in the Nasdaq 100 after Needham & Co. initiated coverage of the stock with a recommendation of buy with a price target of $470. 

Pinterest (PINS) is up more than +3% after several analysts said they were impressed by the company’s investor day Tuesday and that the company was upbeat and its long-term targets look achievable.

On Holding (ONON) is up more than +1% after Needham & Co. initiated coverage of the stock with a recommendation of buy and a price target of $40. 

Kimco Realty (KIM) is up more than +1% after Wells Fargo Securities upgraded the stock to equal weight from underweight. 

Zebra Technologies (ZBRA) is down more than -5% to lead losers in the S&P 500 after Morgan Stanley downgraded the stock to underweight from equal weight.

Intel (INTC) is down more than -2% to lead losers in the Dow Jones Industrials and Nasdaq 100 on disappointment the company did not announce any new news regarding its 18A semiconductor manufacturing process at its Innovation conference. 

Alphabet (GOOGL) is down more than -1% after the company said it had only regained only 40% of the mobile traffic it used to have on its mapping service after Apple replaced Google Maps on its iPhones in favor of its own app.

NCino (NCNO) is down more than -5% after Morgan Stanley downgraded the stock to underweight from equal weight with a price target of $24.

Dollar General (DG) is down more than -1% after JPMorgan Chase downgraded the stock to underweight from neutral. 

Across the markets…

December 10-year T-notes (ZNZ23) today are up +8 ticks, and the 10-year T-note yield is down -3.2 bp at 4.327%.  T-notes are moving higher today on carryover support from strength in European bond markets.  The 10-year UK gilt yields fell to a 2-3/4 month low today after UK consumer prices last month unexpectedly eased, and 10-year German bund prices rallied after German producer prices in August posted a record decline.  Short covering ahead of the conclusion of the FOMC meeting and comments from Fed Chair Powell later this afternoon are also pushing T-notes higher.

The dollar index (DXY00) today is down -0.22%.  This morning’s rally in stocks is curbing liquidity demand for the dollar.  Also, lower T-note yields today are weighing on the dollar.  Losses in the dollar are limited by expectations for a hawkish stance from the FOMC later today. 

EUR/USD (^EURUSD) today is up +0.31%.  Dollar weakness today is supportive of the euro.  Also, signs of strength in the Eurozone economy are bullish for EUR/USD after Eurozone Aug new car registrations posted their largest increase in 5 months, and Eurozone Jul construction output rose by the most in 5 months.  Gains in the euro are limited after German producer prices in August posted their biggest decline on record, a dovish factor for ECB policy.

Eurozone Aug new car registrations rose +21.0% y/y to 788,000 units, the biggest increase in 5 months.

Eurozone Jul construction output rose +0.8% m/m, the biggest increase in 5 months.

German Aug PPI fell -12.6% y/y, weaker than expectations of -12.5% y/y and the largest decline since the data series began in 1977.

USD/JPY (^USDJPY) is down -0.11%.  The yen today recovered from a 10-1/2 month low against the dollar and moved higher after a slide in T-note yields sparked short covering in the yen.  Better-than-expected Japanese trade data was also supportive of the yen.  The yen today initially moved lower on central bank divergence with the ECB, BOE, and the Fed in the midst of rate hiking cycles while the BOJ maintains record low-interest rates.

Japanese trade news supported the yen after Japan Aug exports fell -0.8% y/y, a smaller decline than expectations of -2.1% y/y.  Also, Aug imports fell -17.8% y/y, the biggest decline in three years but a smaller decline than expectations of -20.0% y/y.

October gold (GCV3) today is up +10.1 (+0.52%), and Dec silver (SIZ23) is up +0.309 (+1.32%). Precious metals prices today are moderately higher, with gold and silver posting 2-week highs.  A weaker dollar today is bullish for metals.  Also, lower global bond yields today are supportive of precious metals.  Gains in metals are limited by the expectations that the Fed will acknowledge a hawkish pause after today’s FOMC meeting.  Gold prices are also weighed down by long liquidation pressures after long gold holdings in ETFs fell to a 3-1/2 year low on Tuesday.

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