Another leg higher in bond yields has markets on edge, but solid earnings are pushing stocks into the green heading into the Thursday session.
U.S. equity futures edged modestly higher Thursday, although investors remain way of risk markets amid another move higher in Treasury bond yields and a further disruption in global currency markets.
Benchmark 10-year Treasury note yields hit a fresh fourteen year high of 4.169% in overnight trading, extending a sell-off in bonds that began late last week amid concerns over broader market liquidity first raised by Treasury Secretary Janet Yellen.
The sell-off has been coupled with big moves in the currency markets, where Japan’s yen fell past the 1.50 mark against the U.S. dollar for the first time since 1990, extending a year-to-date decline of around 33% and inducing more talk of intervention from the Ministry of Finance, which spent around $19 billion trying to boost the yen’s value last month.
Britain’s sudden political crisis, triggered by an ill-fated economic agenda from new Prime Minister Liz Truss, continues to echo through bond markets as well, with the Bank of England having to thread the needle between taming the fastest inflation in forty years while also being ready to defend any attack on the pound or instability in the bond markets.
The collective concerns has sapped investor sentiment heading into the end of the week, while a softer-than-expected revenue gain from Tesla looks to hold down gains for both the S&P 500 and the Nasdaq heading into the start of trading on Wall Street.
“Equity markets rolled over yesterday suffering in the headwinds of a fresh strong rise in US treasury yields, as the entire US yield curve lifted to new highs for the cycle,” said Saxo Bank strategists. “The rise in yields is pushing hard on the yen to weaken further, but the USD/JPY rate of 150.00 it’s clearly a psychological barrier for official intervention-wary traders.”
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Futures contracts tied to the S&P 500 are indicating an 8 point opening bell gain while those linked to the Dow Jones Industrial Average are priced for a 135 point boost. The tech-focused Nasdaq is priced for a 15 point bump.
Tesla (TSLA) – Get Tesla Inc. Report shares fell 6%, extending a six-month decline that has loped more than $350 billion from the world’s most valuable carmaker, after it posted softer-than-expected third sales and said full-year deliveries may fall just shy of its 50% growth target.
IBM (IBM) – Get International Business Machines Corporation Report shares gained 4.1% after the software and services group posted stronger-than-expected third quarter earnings and said it would top full-year revenue targets despite an increasing headwind from the surging U.S. dollar.
AT&T T, meanwhile, gained 3% after it delivered stronger-than-expected third quarter earnings and boosted its full-year profit forecast thanks to a big gain in wireless subscribers helped in part by promotional plans linked to Apple (AAPL) – Get Apple Inc. Report iPhones.
In other markets, oil prices jumped in overnight trading following a report that China is prepared to loosen Covid quarantine rules for inbound visitors, a move that could lead to changes in Beijing’s ‘zero Covid’ policy that has tamped industrial demand in the world’s biggest energy market.
WTI crude futures were marked $1.65 higher in overnight trading at $86.17 per barrel, while Brent contracts gained $1.38 to $93.79 per barrel.
The CBOE group’s key volatility gauge was holding at 30.75 points, suggesting daily swings of around 71 points over the next 30 days for the biggest U.S. benchmark.
In Europe, stocks were mixed with London’s FTSE 100 up 0.07% while the region-wide Stoxx 600 fell 0.26% in mid-day trading. Overnight in Asia, Japan’s Nikkei 225 ended 0.92% while the MSCI ex-Japan index fell 0.82% to pull the regional benchmark to its lowest levels in two-and-a-half years.
