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Rising Treasury Yields May Weigh On Wall Street
US Market
The major U.S. index futures are currently pointing to a lower open on Wednesday, with stocks likely to see initial weakness after turning in mixed performances over the past several sessions.
A continued increase in U.S. Treasury yields may weigh on Wall Street amid concerns the Federal Reserve could accelerate plans to tighten monetary policy.
The yield on the benchmark ten-year note has climbed to its highest intraday level in a month, extending the upward move seen since President Joe Biden announced his intent to re-nominate Fed Chair Jerome Powell.
Yields saw further upside after the Labor Department released a report showing first-time claims for U.S. unemployment benefits slid to their lowest level in over fifty years in the week ended November 20th.
The Labor Department said initial jobless claims tumbled to 199,000, a decrease of 71,000 from the previous week’s revised level of 270,000.
Economists had expected jobless claims to edge down to 260,000 from the 268,000 originally reported for the previous week.
With the much bigger than expected decrease, jobless claims fell to their lowest level since hitting 197,000 in November of 1969.
The major U.S. stock indexes once again moved in opposite directions during trading on Tuesday, closing mixed for the fourth consecutive session. While the Nasdaq extended the sharp pullback seen in the previous session, the Dow and the S&P 500 moved to the upside.
The Nasdaq climbed well off its worst levels of the day but still closed down 79.62 points or 0.5 percent at 15,775.14. Meanwhile, the Dow climbed 194.55 points or 0.6 percent to 35,813.80 and the S&P 500 rose 7.76 points or 0.2 percent at 4,690.70.
The tech-heavy Nasdaq pulled back further off the record intraday high set in early trading on Monday, as a continued increase in treasury yields weighed on high-growth tech stocks.
Yields have moved notably higher since President Joe Biden announced his intention to nominate Jerome Powell for a second term as Fed Chair.
While Biden also intends to nominate current Fed Governor Lael Brainard as Vice Chair, she was seen as a potentially more dovish alternative to Powell.
With the upward move on the day, the yield on the benchmark ten-year note ended the session at its highest closing level in a month.
On the other hand, the Dow benefited from strong gains by financial giants Goldman Sachs (GS) and JPMorgan Chase (JPM).
Overall trading activity was somewhat subdued, however, with a lack of major U.S. economic data keeping some traders on the sidelines ahead of the release of a slew of reports on Wednesday.
Some traders may also be looking to get a head start on the Thanksgiving Day holiday, as the markets will be closed on Thursday and open for just a half-day on Friday.
Energy stocks saw substantial strength on the day, regaining ground amid a continued rebound by the price of crude oil.
Reflecting the strength in the energy sector, the Philadelphia Oil Service Index spiked by 3.7 percent, the NYSE Arca Oil Index shot up by 3 percent and the NYSE Arca Natural Gas Index jumped by 2 percent.
Considerable strength also emerged among banking stocks, as reflected by the 1.6 percent gain posted by the KBW Bank Index.
Steel and brokerage stocks also saw notable strength on the day, while significant weakness was visible among gold, software and airline stocks.
U.S. Economic Reports
A report released by the Labor Department on Wednesday showed first-time claims for U.S. unemployment benefits slid to their lowest level in over fifty years in the week ended November 20th.
The Labor Department said initial jobless claims tumbled to 199,000, a decrease of 71,000 from the previous week’s revised level of 270,000.
Economists had expected jobless claims to edge down to 260,000 from the 268,000 originally reported for the previous week.
With the much bigger than expected decrease, jobless claims fell to their lowest level since hitting 197,000 in November of 1969.
Meanwhile, the Commerce Department released a report showing another steep drop in orders for transportation equipment led to an unexpected decrease in new orders for U.S. manufactured durable goods in the month of October.
The report said durable goods orders fell by 0.5 percent in October following a 0.4 percent drop in September. The decrease surprised economists, who had expected durable goods orders to rise by 0.2 percent.
Excluding the continued decline in orders for transportation equipment, durable goods orders rose by 0.5 percent in October after climbing by 0.7 percent in September. The increase matched economist estimates.
A separate report from the Commerce Department showed the U.S. economy grew by slightly more than previously estimated in the third quarter.
The Commerce Department said real gross domestic product advanced by 2.1 percent in the third quarter compared to the previously reported 2.0 percent increase. Economists had expected the pace of GDP growth to be upwardly revised to 2.2 percent.
Despite the slightly stronger than previously estimated increase, the GDP growth in the third quarter still reflects a substantial slowdown from the 6.7 percent spike in the second quarter.
The report said upward revisions to consumer spending, private inventory investment, and state and local government spending were partly offset by downward revisions to exports, fixed and federal government spending.
At 10 am ET, the Commerce Department is scheduled to release its report on personal income and spending in the month of October. Personal income is expected to inch up by 0.2 percent, while personal spending is expected to jump by 0.9 percent.
The Commerce Department is also due to release a separate report on new home sales in the month of October at 10 am ET. New home sales are expected to slump by 1.3 percent to an annual rate of 790,000.
Also at 10 am ET, the University of Michigan is scheduled to release its revised reading on consumer sentiment in the month of November. The consumer sentiment index is expected to be upwardly revised to 66.9 from the preliminary reading of 66.8.
The Energy Information Administration is due to release its report on oil inventories in the week ended November 19th at 10:30 am ET.
Crude oil inventories are expected to decrease by 1.0 million barrels after falling by 2.1 million barrels in the previous week.
At 2 pm ET, the Federal Reserve is scheduled to release the minutes of its latest monetary policy meeting held November 2-3.
Stocks in Focus
Shares of Gap (GPS) are seeing substantial pre-market weakness after the apparel retailer reported weaker than expected fiscal third quarter results and cut its full-year revenue outlook.
Department store chain Nordstrom (JWN) is also moving sharply lower in pre-market trading after reporting third quarter results that came in well below analyst estimates.
Meanwhile, shares of HP Inc. (HPQ) are likely to see initial strength after the computer and printer maker reported fiscal fourth quarter results that beat expectations and raised its first quarter guidance.
Farm equipment maker Deere (DE) may also move to the upside after reporting better than expected fiscal fourth quarter earnings.
Europe
European stocks have seen further downside during trading on Wednesday after four days of losses. Fears around Europe’s worsening Covid-19 situation and the prospects of higher interest rates are weighing on the markets.
Currently, the French CAC 40 Index and the German DAX Index are both down by 0.7 percent, although the U.K.’s FTSE 100 Index is once again bucking the downtrend and edging up by 0.1 percent.
A measure of German business sentiment worsened again in November. The ifo business-climate index fell to 96.5 in November from 97.7 in October, marking the fifth consecutive decrease by the indicator after it peaked at 101.8 in June.
Johnson Matthey has moved sharply lower. The chemicals company has warned that exiting its electric battery business will cost shareholders £314 million.
Drägerwerk AG & Co. KGaA has also slumped after saying it expects a decline in net sales and earnings for the coming fiscal year.
On the other hand, Telecom Italia has soared after reports U.S. private equity giant KKR is considering boosting its offer for the company.
Elior Group shares have also risen. The French catering company announced new growth and profit targets for its next fiscal year after posting its best quarter since the pandemic began.
Asia
Asian stocks ended on a muted note Wednesday as U.S. Treasury yields continued to rise on expectations that the Federal Reserve might speed up policy tightening to cope with broadening inflationary risks.
Concerns also persisted about the resurgence of coronavirus cases and fresh lockdown measures in Europe and elsewhere.
Chinese and Hong Kong shares ended higher after reports that Chinese Estates Holdings, a long-time supporter of China Evergrande Group, has further cut its stake in the embattled property developer.
China’s Shanghai Composite Index ended up 3.61 points, or 0.1 percent, at 3,592.70, while Hong Kong’s Hang Seng Index edged up 33.92 points, or 0.1 percent, to 24,685.50.
Japanese shares tumbled as growth-oriented stocks came under selling pressure amid bets that the Federal Reserve could raise interest rates sooner than expected.
The Nikkei 225 Index slumped 471.45 points, or 1.6 percent, to 29,302.66, while the broader Topix closed 1.2 percent lower at 2,019.12.
Internet firm Z Holdings and medical platform operator M3 both lost around 5 percent, while heavyweight SoftBank Group gave up 3.3 percent. Automakers bucked the weak trend, with Nissan Motor and Mitsubishi Motors rising 4-5 percent.
Toshiba dropped 1.6 percent after its second-largest shareholder reportedly objected to the conglomerate’s plan to split itself into three companies.
In economic news, the manufacturing sector in Japan picked up steam in November, the latest survey from Jibun Bank revealed, with the manufacturing PMI rising to 54.2 from 53.2 in October. The services PMI improved to 52.1 in November from 50.7 in October.
Australian markets ended a choppy session slightly lower as a firmer dollar and rising Treasury yields dragged gold miners and tech stocks.
The benchmark S&P/ASX 200 Index slipped 11.20 points, or 0.2 percent, to 7,399.40, while the broader All Ordinaries Index ended down 16.20 points, or 0.2 percent, at 7,725.50.
Evolution Mining, Newcrest and Northern Star Resources all fell over 1 percent as bullion prices hit a three-week low.
Tech stocks followed their U.S. peers lower, with Wisetech Global losing 2.4 percent. TechnologyOne plunged 8.6 percent after a rating downgrade from Jefferies.
Origin Energy, Woodside Petroleum and Santos rose 1-2 percent as oil extended overnight gains after major oil-consuming economies announced a smaller than expected release from their strategic petroleum reserves.
Seoul stocks ended a tad lower as investors adopted a cautious stance ahead of the central bank’s monetary policy meeting. The benchmark Kospi ended down 3.04 points, or 0.1 percent, at 2,994.29 amid expectations the central bank might raise the key interest rate on Thursday.
Business confidence in South Korea was steady in November, the latest survey from the Bank of Korea showed earlier today, with a Business Survey Index (BSI) score of 90 – unchanged from the October reading.
Commodities
Crude oil futures are slipping $0.20 to $78.30 a barrel after jumping $1.75 to $78.50 a barrel on Tuesday. Meanwhile, an ounce of gold is trading at $1,784.80, up $1 compared to the previous session’s close of $1,783.80. On Tuesday, gold tumbled $22.50.
On the currency front, the U.S. dollar is trading at 115.15 yen compared to the 115.14 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is trading at $1.1210 compared to yesterday’s $1.1248.
