What you need to know…

The S&P 500 Index ($SPX) (SPY) today is down -0.75%, the Dow Jones Industrials Index ($DOWI) (DIA) is down -0.41%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -1.25%.

Stocks this morning are moderately lower.  A smaller-than-expected increase in weekly initial unemployment claims signals labor market strength that nudged bond yields higher and is weighing on stocks.  Losses in stock index futures were limited after the U.S. Aug trade deficit narrowed more than expected to a 3-year low, a positive development for GDP.

U.S. weekly initial unemployment claims rose +2,000 to 207,000, showing a stronger labor market than expectations of 210,000.  Weekly continuing claims unexpectedly fell -1,000 to 1.664 million, showing a stronger labor market than expectations of an increase to 1.671 million.

The U.S. Aug trade deficit shrank to a 3-year low of -$58.3 billion from -$64.7 billion in July, a narrower deficit than expectations of -$59.8 billion. 

After Wednesday’s smaller-than-expected increase in the U.S. Sep ADP employment change, market attention will focus on Friday’s monthly U.S. report that is expected to show Sep nonfarm payrolls rose by +170,000 and the Sep unemployment rate fell by -0.1 to 3.7%. 

The markets are discounting a 22% chance that the FOMC will raise the funds rate by +25 bp at the next FOMC meeting that ends on November 1, and a 38% 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 mixed.  The 10-year T-note yield is up +0.2 bp at 4.735%. The 10-year German bund yield is down -2.2 bp at 2.897%.  The 10-year UK gilt yield is down -1.5 at 4.564%. 

Overseas stock markets are mixed.  The Euro Stoxx 50 is up +0.39%.  China’s Shanghai Composite Index was closed for the Golden Week holidays. Japan’s Nikkei 225 today closed +1.80%.

Today’s stock movers…

Clorox (CLX) is down more than -8% to lead losers in the S&P 500 after saying preliminary net sales fell by 23%-28% in the quarter ended September 30 after a cyberattack disrupted production.

Zebra Technologies (ZBRA) is down more than -2% after BNP Paribas Exane initiated coverage of the stock with a recommendation of underperform and a price target of $183.

Airbnb (ABNB) is down more than -2% on signs of insider selling after an SEC filing showed CAO Bernstein sold $1.89 million of shares on Monday.

Constellation Brands (STZ) is down more than -2% after it reported Q2 comparable net sales of $2.84 billion, above the consensus of $2.83 billion.  However, Wells Fargo Securities said that while the performance was good, it was “not good enough.”

Rivian Automotive (RIVN) is down more than -17% after announcing plans to issue $1.5 billion in convertible debt.

Resources Connection (RGP) is down more than -7% after reporting Q1 revenue of $170.2 million, below the consensus of $170.5 million. 

Tractor Supply (TSCO) is down over -1% after Citigroup downgraded the stock to neutral from buy.   

Lamb Weston Holdings (LW) is up more than +9% to lead gainers in the S&P 500 after reporting Q1 adjusted EPS of $1.63, well above the consensus of $1.07.

Ceridian HCM Holding (CDAY) is up more than +2% after Needham upgraded the stock to buy from hold with a price target of $82.

Western Digital (WDC) is up more than +2% after the Maeil Business Newspaper said that Samsung Electronics would raise NAND memory chip prices by more than +10% as soon as this month.  Micron Technology (MU) is up more than +1% to lead gainers in the Nasdaq 100 on the news.

Carnival (CCL) is up more than +1% after Shore Capital Stockbrokers upgraded the stock to hold from sell.

Johnson & Johnson (JNJ) is up more than +1% to lead gainers in the Dow Jones Industrials after RBC Capital Markets initiated coverage on the stock with a recommendation of outperform and a price target of $178. 

Orchard Therapeutics ADRs (ORTX) are up more than +96% after Kyowa Kirin agreed to acquire the company for $387.4 million or $16 per American depository share. 

Chubb Ltd (CB) is up more than +1% after Deutsche Bank reinstated coverage of the stock with a recommendation of buy and a price target of $269. 

Across the markets…

December 10-year T-notes (ZNZ23) this morning are down -2 ticks, and the 10-year T-note yield is up +0.2 bp at 4.735%.  Dec T-notes today are slightly lower after weekly U.S jobless claims rose less than expected, a sign of strength in the labor market that is hawkish for Fed policy.  However, T-notes recovered most of their losses on a decline in inflation expectations.  The 10-year breakeven inflation rate today fell to a 1-week low of 2.314%. 

The dollar index (DXY00) today is down by -0.16%.  A decline in T-note yields today is undercutting the dollar. Also, hawkish comments from ECB Vice President de Guindos boosted the euro and weighed on the dollar.  Losses in the dollar were limited after weekly U.S. jobless claims rose less than expected and the U.S Aug trade deficit shrank to a 3-year low. 

EUR/USD (^EURUSD) today is up by +0.13%.  The euro today is moderately higher and found support on comments from ECB Vice President de Guindos who said that given still strong inflation it is "premature" to discuss a potential reduction of interest rates.  The euro was undercut by today’s weaker-than-expected German Aug trade news and the record contraction in the German Sep S&P construction PMI.

Today’s Eurozone economic news was weaker-than-expected and bearish for the euro.  German Aug exports fell -1.2% m/m, weaker than expectations of -0.6% m/m.  Also, Aug imports unexpectedly fell -0.4% m/m versus expectations of a +0.5% m/m increase. In addition, the German Sep S&P construction PMI fell -2.2 to 39.3, the weakest level since the data series began in 2020.

USD/JPY (^USDJPY) is down by -0.29%.  The yen today garnered support from higher Japanese government bond yields after the 10-year JGB bond yield today rose to a 10-year high of 0.814%. 

December gold (GCZ3) today is down -0.7 (-0.04%), and Dec silver (SIZ23) is up +0.099 (+0.47%). Precious metals prices this morning are mixed, with gold posting a 7-month low.  Hawkish comments from ECB Vice President de Guindos undercut gold today when he said that given still strong inflation, it is "premature" to discuss a potential reduction of interest rates.  Also, a fall in the 10-year breakeven inflation rate today to a 1-week low reduced demand for gold as an inflation hedge.  In addition, long liquidation pressures are weighing on gold after long gold holdings in ETFs fell to a 3-1/2 year low on Wednesday.  A weaker dollar today is supportive of precious metals prices, as is a decline in global bond yields.

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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.