U.S. equity futures moved in-and-out of positive territory Tuesday, while the dollar tested the highest levels against its peers in nearly a year, as markets continue to grapple with the prospect of higher Fed rates and surging Treasury bond yields.
The U.S. dollar index, which tracks the greenback against a basket of six global currency peers, was marked 0.13% higher in overnight trading at 107.047 and within touching distance of the highest levels since November of last year.
That moved followed comments from a pair of Federal Reserve officials late Monday, including Cleveland Fed President Loretta Mester, indicating the need for higher interest rates to effectively tame inflation in the resilient U.S. economy.
“I suspect we may well need to raise the fed funds rate once more this year and then hold it there for some time as we accumulate more information on economic developments and assess the effects of the tightening in financial conditions that has already occurred,” Mester said in public remarks at an event in Cleveland.
The CME Group’s FedWatch now suggests a 25.7% chance of a quarter point rate hike when the Fed finishes its next two-day policy meeting on November 1, with the odds of a December hike – either a quarter or half point – pegged at just under 45%.
Treasury bond yields were back on the march as well, following the biggest one-day rise in nearly a month on Monday, with benchmark 10-year notes trading at a fresh 2007 high of 4.702% and 2-year notes pegged at just under 5.1%.
The sharp moves higher, as well as the hawkish rhetoric from Fed officials, will put this week’s job market data in stark focus as investors look for evidence that labor market tightness will stoke inflation pressures into the final months of the year.
The Bureau of Labor Statistics will publish its monthly estimate of jobs openings at 10:00 am today, with ADP’s monthly employment report expected at 8:15 am on Wednesday, weekly jobless claims slated for 8:30 am on Thursday. The crucial September non-farm payrolls report will come prior to the opening bell on Friday.
Heading into the start of the trading day on Wall Street, futures tied to the S&P 500 are indicating a 4 point opening bell gain while those linked to the Dow Jones Industrial Average suggest a 22 point move to the upside.
The Nasdaq is indicated to open just 4 points higher.
In overseas markets, the surging dollar added to global stock pressures in many key markets, with the MSCI World index falling 0.3% to a fresh-four month low, lead by a 1.4% decline for the region-wide Asia ex-Japan benchmark.
In Japan, the Nikkei 225 ended down 1.64% as the yen slipped to a multi-year low of 149.87 against the dollar, prompting Japanese Finance Minister Shunichi Suzuki to comment on the possibility of currency intervention
Japan purchased yen to prop up the currency in international markets, the first intervention in 24 years, when it slipped below the 145 mark in September of last year.
In Europe, the Stoxx 600 was marked 0.3% lower in early Frankfurt dealing while the FTSE 100 rose 0.28% as the pound slumped to 1.2067 against the U.S. dollar.
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