Morning Call: Rising interest rates pressures stocks; Jun E-mini S&Ps down -0.52%; Yield on the 10-year T-note climbs to a 4-1/4 year high od 3.02%.
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 ESM18 - S&P 500 E-Mini

Overnight Markets and News

Jun E-mini S&Ps (ESM18 -0.61%) this morning are down -0.52% and European stocks are down -1.16% at a 1-week low. European industrial stocks sold-off following the nearly 7% plunge in Caterpillar on Tuesday. Comments from Caterpillar's CFO on his outlook for the year fueled concern over profits in the sector as well as the health of the global economy when he said Q1 adjusted EPS "will be the high watermark for the year." Also, rising interest rates are pressuring stock prices as the 10-year T-note yield rose above 3% to a new 4-1/4 year high of 3.02%%. The markets await Thursday's ECB meeting for signs of when the ECB plans to exit its QE program. Asian stocks settled lower: Japan -0.28%, Hong Kong -1.01%, China -0.35%, Taiwan -0.18%, Australia closed for holiday, Singapore -0.46%, South Korea -0.59%, India -0.33%. Tuesday's slide in U.S. technology and industrial stocks weighed on Asian markets, although losses in Japanese stocks were tempered on weakness in the yen which is positive for exporters after USD/JPY climbed to a new 2-1/4 month high.

The dollar index (DXY00 +0.38%) is up +0.28% at a 3-1/4 month high as the increase in the 10-year T-note yield to a 4-1/4 year high of 3.02% boosts the dollar's interest rate differentials. EUR/USD (^EURUSD -0.36%) is down -0.29. USD/JPY (^USDJPY +0.29%) is up +0.22% at a 2-1/4 month high.

Jun 10-year T-note prices (ZNM18 -0-080) are down -7.5 ticks at a new contract low.

ECB Executive Board member Mersch said "confidence on inflation has risen as the inflation rate hasn't weakened as much as the ECB predicted when we reduced the bond purchasing program from 60 billion euros to 30 billion euros."

ECB Governing Council member Vasiliauskas said "we have witnessed the strengthening of broad-based growth and steadily declining unemployment, which has provided conditions for inflation convergence to our objective. This has increased my confidence that it is time to transition from the asset purchase program."

U.S. Stock Preview

Key U.S. news today includes: (1) weekly MBA mortgage applications (previous +4.9% to 399.4 with the purchase sub-index up +6.1% to 262.4 and the refi sub-index up +3.5% to 1149.5), (2) EIA weekly Petroleum Status Report, (3) Treasury auctions $17 billion of 2-year floating-rate notes and $35 billion of 5-year T-notes.

Notable S&P 500 earnings reports today include: Facebook (consensus $1.38), Ford Motor (0.41), eBay (0.54), PayPal (0.54), Boeing (2.58), General Dynamics (2.49), Comcast (0.60), Nasdaq (1.19), Goodyear Tire & Rubber (0.46), Hess (-0.50), Visa (1.02), MAD (0.09), AT&T (0.88).

U.S. IPO's scheduled to price today: Ceridian HCM Holding (CDAY).

Equity conferences this week: American Academy of Neurology Meeting on Mon-Fri.

Market Comments

June S&P 500 E-minis (ESM18 -0.61%) this morning are down -13.75 points (-0.52%). Tuesday's closes: S&P 500 -1.34%, Dow Jones -1.74%, Nasdaq -2.10%. The S&P 500 on Tuesday fell to a 2-week low and closed sharply lower on interest rate concerns and on weakness in industrial stocks led by a 6% slump in Caterpillar after the company said Q1 earnings were the "high water mark" for the year. There was also weakness in technology stocks as Apple fell for a fifth session to a 2-1/4 month low. Stocks found underlying support from the +4.0% m/m increase in U.S. Mar new home sales to a 4-month high of 694,000 (stronger than expectations of +1.9% to 630,000) and the unexpected +1.7 point increase in the Conference Board's U.S. Apr consumer confidence to 128.7 (stronger than expectations of -1.7 to 126.0).

June 10-year T-notes (ZNM18 -0-080) this morning are down -7.5 ticks at a new contract low. Tuesday's closes: TYM8 -7.00, FVM8 -3.50. Jun 10-year T-notes on Tuesday fell to a new contract low but then recovered and settled unchanged. T-note prices were undercut by the stronger-than-expected U.S. economic data on Mar new home sales and Apr consumer confidence, which bolsters the case for additional Fed rate hikes, and by technical selling with the new contract low. Prices recovered after the slump in stocks boosted safe-haven demand for T-notes.

The dollar index (DXY00 +0.38%) this morning is up +0.255 (+0.28%) at a 3-1/4 month high. EUR/USD (^EURUSD -0.36%) is down -0.0036 (-0.29%). USD/JPY (^USDJPY +0.29%) is up +0.24 (+0.22%) at 2-1/4 month high. Tuesday's closes: Dollar Index -0.180 (-0.20%), EUR/USD +0.0024 (+0.20%), USD/JPY +0.11 (+0.10%). The dollar index on Tuesday fell back from a 3-1/4 month high and closed lower. The dollar was undercut by the unexpected -18 point decline in the U.S. Apr Richmond Fed manufacturing index to a 1-1/2 year low of -3 and by strength in EUR/USD on short covering ahead of Thursday's ECB meeting.

Metals prices this morning are mixed with Jun gold (GCM18 -0.57%) -6.9 (-0.52%), May silver (SIK18 -0.98%) -0.148 (-0.89%), and May copper (HGK18 -0.16%) +0.003 (+0.10%). Tuesday's closes: Jun gold +9.00 (+0.68%), May silver +0.116 (+0.70%), May copper +0.0315 (+1.01%). Metals on Tuesday closed higher on dollar weakness and the stronger-than-expected U.S. Feb S&P CoreLogic composite-20 home price index and U.S. Mar new home sales reports, which were supportive for copper demand. Copper was also boosted by the +16,950 MT increase in canceled LME copper warrants, a gauge of copper demand that shows the number of requests to withdraw copper from LME warehouses relative to the level of LME inventories, to a 5-month high of 82,100 MT.

Jun WTI crude oil prices (CLM18 -0.04%) this morning are up +17 cents (+0.25%) and Jun gasoline (RBM18 -0.19%) is +0.0007 (+0.03%). Tuesday's closes: Jun crude -0.94 (-1.37%), Jun gasoline -0.271 (-1.27%). Jun crude oil and gasoline on Wednesday closed lower on the sharp decline in stocks, which undercut confidence in the economic outlook and energy demand. Crude oil prices were also undercut by French President Macron's proposal for a new nuclear deal with Iran, which would keep Iran crude exports intact. Crude oil prices were supported by a weaker dollar and by expectations for Wednesday's EIA crude inventories to fall -2.25 million bbl.

Overnight U.S. Stock Movers

Edwards Lifesciences (EW -1.84%) dropped more than 7% in after-hours trading after it forecast Q2 adjusted EPS of $1.05-$1.15, weaker than consensus of $1.17.

Alphabet (GOOGL -4.77%) was upgraded to 'Buy' from 'Hold' at Stifel with a price target of $1,234.

Illumina (ILMN -2.99%) gained almost 2% in after-hours trading after it reported Q1 adjusted EPS of $1.45, well above consensus of $1.02, and forecast full-year adjusted EPS of $4.75 to $4.85, better than consensus of $4.59.

Texas Instruments (TXN +0.34%) rose over 5% in after-hours trading after it reported Q1 revenue of $3.79 billion, above consensus of $3,65 billion and forecast Q2 revenue of $3.78 billion to $4.10 billion, the midpoint stronger than consensus of $3.90 billion.

Shire PLC (SHPG +2.41%) rose 4% in after-hours trading after Reuters reported that Shire and Takeda Pharmaceutical plan to announce a preliminary deal on Wednesday.

Total System Services (TSS -1.34%) gained more than 2% in after-hours trading after it reported Q1 revenue of $987.2 million, higher than consensus of $955.3 million, and forecast full-year revenue of $3.0 to $4.0 billion, better than consensus of $3.9 billion.

MKS Instruments (MKSI -2.88%) rallied 3% in after-hours trading after it reported Q1 adjusted EPS of $2.07, above consensus of $2.00 and forecast Q2 adjusted EPS of $2.09 to $2.36, stronger than consensus of $2.06.

Six Flags Entertainment (SIX -2.73%) rose nearly 5% in after-hours trading after it reported a Q1 loss per share of -74 cents, narrower than consensus of -80 cents.

USANA Health Sciences (USNA +0.31%) climbed over 4% in after-hours trading after it forecast full-year EPS of $4.25 to $4.55, the midpoint above consensus of $4.39.

iRobot (IRBT -1.45%) gained 3% in after-hours trading after it reported Q1 revenue of $217.1 million, higher than consensus if $214.3 million.

Dolby Laboratories (DLB -2.17%) sank nearly 9% in after-hours trading after it forecast Q3 adjusted EPS of 78 cents to 84 cents, weaker than consensus of $1.00.

Cree Inc (CREE -2.53%) jumped almost 9% in after-hours trading after it reported Q3 revenue of $356 million, higher than consensus of $347.3 million, and forecast Q4 revenue of $390 million to $410 million, well above consensus of $374.1 million.

Supervalu (SVU -0.20%) slid over 2% in after-hours trading after it reported Q4 net sales of $3.59 billion, weaker than consensus of $3.93 billion.

Menlo Therapeutics (MNLO -6.75%) tumbled 10% in after-hours trading after it said its partners Japan Tobacco and Torii Pharmaceuticals halted a recently initiated Phase 2 clinical trial of its serlopitant for treatment of pruitus associated with atopic dermatitis.