A big leap in Treasury bond yields has stocks on the run Wednesday, with tech leading the declines ahead of today’s Fed minutes release.
U.S. equity futures slumped lower Wednesday, while Treasury yields leaped and the dollar rose to a two-year high against its global peers, as investor adjusted their bets on Federal Reserve rate hikes ahead of the release of minutes from its March policy meeting.
Federal Reserve Governor Lael Brainard told an event in Minneapolis late Tuesday that the Fed would not only be “methodical” in its effort to raise interest rates in order to tame the highest levels of inflation in forty years, but it would also begin the run-off of the Fed’s $9 trillion balance sheet as soon as next month, and at a “considerably” more rapid pace than in the past.
Those comments, as well as data showing at least a 76.6% chance of a 50 basis point rate hike at next month’s policy meeting, lifted Treasury bond yields to the highest levels in two years, taking 10-year notes to 2.639% in overnight trading, while boosting the U.S. dollar index to a 2020 peak of 99.487 in overnight trading.
The Fed will release minutes from its March policy meeting, where members raised interest rates for the first time since 2019, later today, with investors focused on any details as to how and when the central bank will unwind its $9 trillion balance sheet.
Stocks Lower, Fed Minutes, Elon Musk, JetBlue And Big Oil – Five Things You Must Know
The CME Group’s FedWatch tool suggests a 76.6% chance of a 50 basis point hike in May, followed by a 60% chance in June and a 48.5% chance in July.
That puts the Fed’s $9 trillion balance sheet — acquired by years bond purchases under its quantitative easing and pandemic support programs — in focus. Selling those assets into the bond market will raise ‘market’ interest rates alongside the official Fed Funds rate, creating a ‘double-tightening’ affect that will both tackle inflationary pressures more aggressively but also put the economy in a more vulnerable position in terms of a slowdown and resultant recession.
The surge in bond yields held down gains for global stocks, which were also hit by data from China showing a sharp slowdown in economic activity last month as the country’s Covid infection rate surged and closed factories and businesses around the country.
China’s Caixin PMI reading, a composite look at activity in the world’s second-largest economy, plunged to 43.9 points last month, the lowest in more than two years and well below the 50 point mark that separates growth from contraction.
In Europe, with investors focused on both the human tragedy from Russia’s war on Ukraine and the impact of sanctions on exports from Moscow, oil prices extended gains ahead of a White House statement later today and comments from European Commission President Ursula von der Leyen that suggested crude could be the next target.
WTI crude futures for May delivery were marked $1.44 higher from Tuesday’s close at $103.40 per barrel in overnight trading, while Brent contracts for June, the new global pricing benchmark, rose $1.11 to trade at $107.74 per barrel.
On Wall Street, futures contracts tied to the Dow Jones Industrial Average indicating a 220point opening bell decline while those linked the S&P 500, which is down 5.06% for the year, are priced for a 41 point pullback. Futures linked to the tech-focused Nasdaq are looking at a 220 point opening bell slide.
Twitter (TWTR) – Get Twitter, Inc. Report shares were active in pre-market trading after Elon Musk conceded late Tuesday what pretty much everyone in the financial world, and certainly those invested in the micro-blogging website already knew: he has no plans to sit on his $3.7 billion stake.
Spirit Airlines (SAVE) – Get Spirit Airlines, Inc. Report slumped lower after the low-cost carrier received an unsolicited $3.6 billion takeover bid from JetBlue Airways (JBLU) – Get JetBlue Airways Corporation Report that could potentially upend its planned merger with Frontier Group (ULCC) – Get Frontier Group Holdings, Inc. Report.
Executives of the biggest U.S. oil companies are expected to face a grilling from lawmakers in Washington Wednesday on record high gasoline prices as the impact of Russia’s war on Ukraine continues to ripple into consumer spending in the world’s biggest economy.
The U.S. House Energy and Commerce Subcommittee on Oversight and Investigations will ask bosses from Exxon Mobil (XOM) – Get Exxon Mobil Corporation Report, Chevron (CVX) – Get Chevron Corporation Report, Devon Energy (DVN) – Get Devon Energy Corporation Report and others for the reasons as to while gasoline price rose so quickly during the early March run-up in crude prices, and whey they’ve taken so long to come down now that WTI crude is some 16% south of its March 8 peak.
Gas prices hit an all-time high of $4.31 in early March, and were last seen pegged at a national average price of $4.164 by the AAA, a figure that would represent only a 3.5% decline.
Chevron shares, which have gained more than 39.2% so far this year — against a 5.1% decline for the S&P 500 — were marked 0.8% higher in pre-market trading at $164.70 each. Exxon shares rose 0.9% to $83.47 each.
