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Financial Markets React to Bond Yields Ahead of Fed Chair Powell’s Remarks

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Market Movement and Employment Data

The market today paints a mixed picture as the S&P 500 Index ($SPX) (SPY) sees a slight decline of -0.06%, contrasting with the Dow Jones Industrials Index ($DOWI) (DIA) which is up +0.26%, and the Nasdaq 100 Index ($IUXX) (QQQ) experiencing a modest increase of +0.14%. The trajectory of stocks is intimately linked to higher bond yields, negatively influenced after today’s robust Mar ADP employment report reaffirmed the prolonged dominance of high interest rates. Furthermore, all eyes are on Fed Chair Powell’s forthcoming comments.

US weekly MBA mortgage applications took a dive of -0.6% in the week concluding on March 29. The purchase mortgage sub-index slipped -0.1%, while the refinancing mortgage sub-index declined by -1.6%. Simultaneously, the average 30-year fixed rate mortgage registered a decrease of -2 basis points, dropping from 6.93% to 6.91% from the prior week.

The US Mar ADP employment change exceeded forecasts by clocking in at +184,000, dwarfing the expected +150,000 figure. Additionally, the Feb ADP was revised upwards to +155,000 from the previously communicated +140,000.

Atlanta Fed President Bostic’s statement regarding the erratic nature of inflation progress signifies a potential interest rate drop at the close of the current year, most likely in the fourth quarter.

The likelihood of a -25 basis point rate cut currently stands at 7% for the next FOMC meeting scheduled for April 30-May 1 and spikes to 60% for the subsequent gathering on June 11-12.

Global stock markets manifest a mix of results with the Euro Stoxx 50 exhibiting a rise of +0.36%. Conversely, China’s Shanghai Composite observed a downtrend of -0.18%, while Japan’s Nikkei Stock Index stumbled to a 2-week low closing with a loss of -0.97%.

Impact of Interest Rates

June 10-year T-notes (ZNM24) display a downturn of -12 ticks this morning. The 10-year T-note yield shows a positive uptick at +3.4 basis points to settle at 4.383%. June T-note prices plunged to a 2-week near-futures low, coinciding with the 10-year T-note yield soaring to a 4-month peak of 4.427%.

Today’s bullish ADP employment report exerted pressure on T-notes, reflecting a hawkish tilt in Fed policy. Moreover, the surge in inflation expectations weighs down on T-note valuations as today’s 10-year breakeven inflation rate catapulted to a 4-3/4 month high of 2.378%. Despite this, the faltering stock market injects a degree of safe-haven appeal for T-notes.

European government bond yields reflect an upward trajectory, illustrated by the 10-year German bund yield rising by +1.4 basis points to settle at 2.414%. The UK gilt yield mirrors this movement with an increase of +0.1 basis points to reach 4.086%.

In the Eurozone, the Mar Consumer Price Index (CPI) decelerated to 2.4% year-on-year from 2.6% in Feb, surpassing expectations of 2.5%. Concurrently, Mar core CPI experienced a dip to 2.9% year-on-year from 3.1% in February, a figure that outperformed expectations of 3.0%, marking the slowest pace of growth in 2 years.

Remarkably, the Eurozone Feb unemployment rate stabilized at a record low of 6.5%, slightly above the anticipated decline to 6.4%.

ECB Governing Council member Holzmann dismissed the possibility of an ECB rate cut in April, stating that a decision might be entertained in June contingent upon favorable data.

Notable Stock Movements

Ulta Beauty (ULTA) led the decliners in the S&P 500 with a significant drop of over -11% following remarks at JPMorgan’s retail round-up investor conference which hinted at a sluggish start to the year based on external indicators.

Intel (INTC) experienced a decline of more than -6%, leading the losses in both the Dow Jones Industrials and Nasdaq 100. The company cited deepening losses in its factory business, projecting a prolonged break-even timeframe.

Wolfspeed (WOLF) spiraled down by over -4% subsequent to a downgrade from Wells Fargo Securities, shifting the stock’s rating to equal weight from overweight.

Tesla (TSLA) witnessed a dip of more than -1%, compounding Tuesday’s -4% fall, as demand for the company’s vehicles in China showed signs of tapering, as per Bloomberg calculations from China’s Passenger Car Association data.

PepsiCo (PEP) tumbled by more than -1% following a downgrade by Argus Research from buy to hold, attributing the decision to potential implications from weight-loss drugs.

Bio-Rad Laboratories (BIO) also declined by more than -1% after a downgrade to neutral from buy by Citigroup.

Five Below (FIVE) displayed a decline of over -1% after a downgrade to accumulate from buy by Gordon Haskett.

Conversely, Eli Lilly (LLY) soared by more than +2% subsequent to an upgrade from hold to buy by Erste Group.

Booking Holdings (BKNG) surged by more than +1% following a buy recommendation from B Riley with a price target of $4,400.

Dave & Buster’s Entertainment (PLAY) witnessed a robust growth of more than +9% post revealing Q4 Ebitda of $151.8 million, exceeding the consensus of $145 million, and announcing an additional $100 million share buyback program.

Cal-Maine Foods (CALM) experienced a rise of more than +6% after reporting Q3 net sales of $703.1 million, surpassing the consensus of $692.5 million.

United Parcel Service (UPS) edged up by nearly +1% after Redburn upgraded the stock to buy from neutral, setting a price target of $180.

Carlisle (CSL) ascended by more than +1% following Goldman Sachs’ initiation of coverage on the stock with a buy recommendation and a price target of $455.

Upcoming Earnings Reports

Companies set to release earnings reports on April 3, 2024, include Acuity Brands Inc (AYI), Novagold Resources Inc (NG), Resources Connection Inc (RGP), Simulations Plus Inc (SLP), Sportsman’s Warehouse Holdings (SPWH), and SWK Holdings Corp (SWKH).

For more stock market news, refer to Barchart.

Rich Asplund has no positions (either directly or indirectly) in any securities referenced in this article. All information and data herein are purely for informational purposes. Consult the Barchart Disclosure Policy for additional details.

The author’s views and opinions expressed do not necessarily align with those of Nasdaq, Inc.