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Markets Today: Global Stocks Slide as Bond Yields Climb

Barchart - Mon Oct 23, 2023

Morning Markets

December E-Mini S&P 500 futures (ESZ23) are down -0.29% at a 4-3/4 month low, and the Dec Nasdaq 100 E-Mini futures (NQZ23) are down -0.30% at 4-1/2 month low.

Stock index futures this morning are following other global equity markets lower after the 10-year T-note yield rose above 5% for the first time since 2007, sparking concern that higher borrowing costs will curb economic growth.  Also, concerns that the Israeli-Hamas war could escalate into a regional conflict are weighing on market sentiment. 

Western countries have intensified efforts to stop the Israeli-Has war from spreading, with EU leaders endorsing a United Nations call for a “humanitarian pause” in the war.  President Biden spoke with the presidents of Canada, France, Germany, and Italy to strengthen coordination among allies, while the prime ministers of Greece and the Netherlands are due in Israel today, and French President Macron will meet Israeli leaders on Tuesday. 

Israel said it supports diplomatic efforts to get Hamas to release hostages from Gaza, a move that could delay a possible ground invasion, although Israel said it won’t wait long to start its ground assault.  Iran and its proxy forces in Lebanon, Iraq, and Yemen have warned they could retaliate against Israel if Israeli troops enter Gaza. 

M&A activity lifted stock index futures from their lows after Chevron agreed to acquire Hess Corp for about $53 billion.  Also, Stonepeak agreed to buy Textainer Group for about $7.4 billion. 

The markets are discounting a 2% chance that the FOMC will raise the funds rate by +25 bp at the next FOMC meeting that ends on November 1, and a 23% 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 are higher.  The 10-year T-note yield rose to a 16-year high of 5.019% and is up +4.9 bp at 4.963%. The 10-year German bund yield rose to a 2-1/2 week high of 2.972% and is up +3.8 bp at 2.927%.  The 10-year UK gilt yield rose to a 2-month high of 4.737% and is up +3.3 bp at 4.683%.  

Overseas stock markets are lower.  The Euro Stoxx 50 is down -0.14%.  China’s Shanghai Composite Index closed down -1.47%.  Japan’s Nikkei 225 today closed down -0.83%.

The Euro Stoxx 50 today fell to a 7-month low on concerns that rising interest rates will stifle economic growth.  The 10-year T-note yield rose above 5% for the first time in 16 years, which helped push the 10-year UK gilt yield to a 2-month high and the 10-year German bund yield to a 2-1/2 week high.  Also, weaker corporate earnings results weighed on market sentiment.  Volkswagen AG fell more than -2% after reporting weaker-than-expected Q3 earnings and cutting its full-year operating profit estimate.  In addition, Royal Philips NV dropped about 4% after reporting Q3 new orders slumped -9%, the fifth consecutive quarter new orders have fallen. 

China’s Shanghai Composite Stock Index today tumbled to a new 11-1/2 month low and closed moderately lower.  Weakness in Chinese technology stocks led the overall market lower as market sentiment took a hit after Chinese authorities launched a series of investigations into several foreign companies.  State media reported that Apple supplier Foxconn, the Taiwanese company that makes the vast majority of iPhones at factories in China, was being investigated by tax authorities and that an executive and two former employees at WPP Plc, one of the world’s largest advertising companies, were arrested in China. Also, the Nikkei newspaper reported that the Chinese government detained a local employee of a Japanese metals trading company back in March.  Meanwhile, Chinese property stocks remain under pressure on liquidity concerns after Country Garden Holdings defaulted on a dollar-bond interest payment due last week.

Japan’s Nikkei Stock Index today fell to a 2-week low and posted moderate losses.  Risk aversion is pressuring stock prices on concerns about the ramifications of a wider conflict in the Middle East that could spark a surge in oil prices.  Also, soaring borrowing costs are weighing on equities after the 10-year T-note yield climbed above 5% for the first time since 2007.  The jump in T-note yields also helped push the Japan 10-year JGB bond yields up to a 10-year high today of 0.882%.  Losses in Japanese stocks were limited as exporter stocks moved higher after the yen fell to a 2-1/2 week low against the dollar. 

Pre-Market U.S. Stock Movers

Megacap technology stocks are falling in pre-market trading as the 10-year T-note yield rose above 5% for the first time in 16 years.  Apple (AAPL), Alphabet (GOOGL), (AMZN), Meta Platforms (META), Microsoft (MSFT), and Nvidia (NVDA) are down -1% or more.   

Chevron (CVX) is down more than -5% in pre-market trading after agreeing to acquire Hess Corp in a deal valued at about $53 billion. 

Okta Inc (OKTA) tumbled more than -4% in pre-market trading after Evercore ISI added the stock to its Tactical Underperform List.

Unity Software (U) dropped more than -3% in pre-market trading after Piper Sandler downgraded the stock to neutral from overweight. 

Diamondback Energy (FANG) and EOG Resources (EOG) are down more than -1% in pre-market trading after Citigroup downgraded the stocks to neutral from buy.   

Salesforce (CRM) slid more than -1% in pre-market trading after Piper Sandler downgraded the stock to neutral from overweight. 

Viatris Inc (VTRS) dropped more than -2% in pre-market trading after Bank of America Global Research downgraded the stock to underperform from neutral.

Stocks exposed to cryptocurrencies are climbing in pre-market trading as Bitcoin jumped more than +3% to a 3-1/4 month high.  As a result, Riot Platforms (RIOT), Hut 8 Mining (HUT), Marathon Digital (MARA), MicroStrategy (MSTR), and Coinbase Global (COIN) are up more than +2%.

Hess Corp (HES) is up more than +1% in pre-market trading after Chevron agreed to buy the company for $53 billion. 

Pinterest (PINS) climbed more than +2% in pre-market trading after Stifel upgraded the stock to buy from neutral with a price target of $32. 

Textainer Group (TGH) surged more than +40% in pre-market trading after Stonepeak agreed to acquire the company for about $7.4 billion.

Walgreens Boots Alliance (WBA) rose more than +3% in pre-market trading after JPMorgan Chase upgraded the stock to overweight from neutral with a price target of $30.

DigitalOcean Holdings (DOCN) gained more than +1% in pre-market trading after Piper Sandler upgraded the stock to neutral from underweight. 

Church & Dwight (CHD) rose nearly +1% in pre-market trading after Raymond James upgraded the stock to market perform from underperform. 

Earnings Reports (10/23/2023)

Alexandria Real Estate Equities (ARE), Brown & Brown Inc (BRO), Cadence Design Systems Inc (CDNS), Cleveland-Cliffs Inc (CLF), Crane Co (CR), Crown Holdings Inc (CCK), Hexcel Corp (HXL), Medpace Holdings Inc (MEDP), Packaging Corp of America (PKG), RLI Corp (RLI), W R Berkley Corp (WRB).

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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.

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