Stocks Tumble on Soaring Global Bond Yields

Rich Asplund - Barchart - Tue Sep 20, 2022

What you need to know…

The S&P 500 Index ($SPX) (SPY) this morning is down -1.05%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -1.12%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.69%.

Stocks this morning are moderately lower on concern that rising global government bond yields will lead to a contraction in economic growth. The 10-year T-note and 10-year UK gilt yields rose to 11-year highs today, and the 10-year German bund yield climbed to an 8-3/4 year high. A slump of more than -8% in Ford Motor today is also weighing on the overall market after it warned that its Q3 Ebitda would be below expectations as its Q3 supply costs were running $1 billion above expectations.

Global bond yields are seeing upward pressure today after Sweden’s Riksbank raised interest rates by a more than expected 100 bp. That fueled fears that the Fed on Wednesday might boost rates by 100 bp as well. The 2-day FOMC meeting began this morning, and the market consensus is for the FOMC to raise the fed funds target range by +75 bp for the third consecutive meeting.

This morning’s U.S. housing news was mixed for stocks. Aug housing starts jumped +12.2% m/m to 1.575 million, stronger than expectations of 1.450 million, due mostly to a surge in multifamily housing. However, Aug building permits, a proxy for future construction, fell -10.0% m/m to a 2-year low of 1.517 million, weaker than expectations of 1.604 million.

Today’s stock movers…

Ford Motor (F) is down more than -8% today to lead losers in the S&P 500 after it said Q3 supply costs were running $1 billion above expectations and warned that Q3 Ebita could be in the $1.4 billion-$1.7 billion range, well below the consensus of a $2.7 billion-$3.0 billion range. General Motors (GM) is also down more than -4% on the news.

Weyerhaeuser (WY) is down more than -5% today after Bank of America downgraded the stock to neutral from buy.

Nike (NKE) is down more than -3% today to lead losers in the Dow Jones Industrials after Barclays downgraded the stock to equal weight from overweight.

PayPal Holdings (PYPL) is down more than -4% today to lead losers in the Nasdaq 100 after Susquehanna downgraded the stock to neutral from positive.

Iron Mountain (IRM) is down more than -5% today after reporting Q2 revenue of $1.29 billion, below the consensus of $1.30 billion.

U.S.-listed casino stocks with operations in Macau are moving higher today on the possibility that Hong Kong will ease Covid restrictions such as mandatory hotel quarantine. Wynn Resorts (WYNN) is up more than +5% to lead gainers in the S&P 500. Also, Las Vegas Sands (LVS) is up more than +5%, and MGM Resorts International (MGM) is up more than +1%.

Cruise line operators are climbing today, led by a more than 2% gain in Norwegian Cruise Line Holdings (NCLH) after it was upgraded to buy from hold at Truist Securities, citing improvement in booking trends across the industry. Carnival (CCL) and Royal Caribbean Cruises (RCL) are up more than +1%.

Humana (HUM) is up nearly +2% today after Morgan Stanley upgraded the stock to overweight from equal weight.

Across the markets…

Dec 10-year T-notes (ZNZ22) today are down -17 ticks, and the 10-year T-note yield is up +9.0 bp at 3.580%. Dec T-notes this morning dropped to a contract low, and nearest-futures Sep T-notes (U22) sank to a 13-year low. The 10-year T-note yield rose to an 11-year high of 3.591%. Today’s action by Sweden’s Riksbank to raise interest rates by a more than expected 100 bp hammered European government bond prices and weighed on T-note prices. The 10-year UK gilt yield climbed to an 11-year high today of 3.312%, and the 10-year German bund yield jumped to an 8-3/4 year high of 1.977%. T-notes are under pressure ahead of the 2-day FOMC meeting that began this morning. The markets have fully priced a +75 bp rate hike at this week’s FOMC meeting.

The dollar index (DXY00) this morning is up +0.43% and posted a 1-1/2 week high. The dollar has garnered support from today’s rise in the 10-year T-note yield to an 11-year high. Also, a slump in stocks today has boosted liquidity demand for the dollar.

EUR/USD (^EURUSD) today is down -0.50%. The euro this morning gave up overnight gains and is moderately lower on dollar strength. Also, record-high producer prices in Germany are weighing on the euro, along with comments from ECB Governing Council member Muller who said interest rates remain far from levels that would restrict economic expansion.

The German Aug PPI rose by a record +45.8% y/y, stronger than expectations of +36.8% y/y.

ECB Governing Council member Muller called for "sufficiently robust and decisive" action by the ECB to tackle record Eurozone inflation, saying interest rates remain far from levels that would restrict economic expansion.

USD/JPY (^USDJPY) today is up +0.41%. Today, the yen is under pressure from higher T-note yields as the 10-year T-note yield soared to a new 11-year high. The yen is also weighed down ahead of the results of the FOMC meeting tomorrow, where the Fed is expected to raise interest rates by 75 bp, further widening the divergence in monetary policies between the Fed and BOJ.

October gold (GCV2) is down -5.4 (-0.32%), and December silver (SIZ22) is down -0.193 (-1.00%). Precious metals this morning are moderately lower. A rally in the dollar index today to a 1-1/2 week high is bearish for metals prices. Gold is also under pressure today on soaring global government bond yield after the 10-year T-note yield and 10-year UK gilt yield rose to 11-year highs, and the 10-year German bund yield rose to an 8-3/4 year high. Fund liquidation of gold is another bearish factor for prices as long positions in gold ETF’s dropped to an 8-month low Monday. Today’s action by Sweden’s Riksbank to raise interest rates by a larger-than-expected 100 bp today also undercut metals prices. A slide in stocks today is boosting the safe-haven demand for precious metals and is limiting the downside in prices.

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