Rising Treasury yields, and another warning on margins from retailing giant Target, has renewed inflation concerns and pushed stocks lower Tuesday.
U.S. equity futures slumped lower Tuesday, while Treasury bond yields and the dollar continued their upward march, as investors peeled away from risk markets amid concern for the impact of central bank tightening on global rate markets.
Stocks extended earlier declines, as well, following a near-term warning on profit margins from Target Corp. (TGT) – Get Target Corporation Report, which said surging fuel and transport costs would continue to erode its bottom line heading into the summer months.
That caution came just hours after the Reserve Bank of Australia spooked markets with its second rate hike in as many month — and the biggest single-meeting move in 22 years — when its lifted its base rate by 50 basis points to 0.85% and said more increases were likely in the near future.
The bigger-than-expected hike pushed the Japanese yen to a fresh 20-year low of 132.72 against the U.S. dollar, while adding further fuel to bond yields in key markets around the world, all of which are seeing a surge in headline inflation powered by higher energy prices and stubbornly high core rates linked to supply chain disruptions.
Stock Futures Lower, Kohl’s, Twitter, Bitcoin and Boris in Focus – Five Things You Must Know
With the European Central Bank set to meet later this week, and the Fed’s June policy meeting just around the corner, traders are now looking for hawkish surprises and paring bets on growth stocks and risk markets.
The CME Group’s FedWatch tool is pricing in a 97.2% chance of a 50 basis point rate hike next week, while also placing a 12.1% probability on a 75 basis point move when the Fed meets next in July.
Still, the Atlanta Fed’s GDPNow forecasting tool pegs current U.S. growth at 1.3%, a tally that would indicate a modest rebound from last quarter’s contraction and suggest that a solid economy underpins the current market, and indicates at least some confidence that the Fed can deliver the ‘soft landing’ it’s aiming for.
European stocks were weaker across the board, with the region-wide Stoxx 600 down 0.72% in mid-day Frankfurt trading, following on from a 1.1% decline for the MSCI ex-Japan benchmark in Asia.
In the U.S., benchmark 10-year Treasury bond yields held at 3.025% in overnight dealing while and the dollar index gained 0.22% against a basket of six global currencies to 102.656 in European trading.
The moves pushed Bitcoin prices back below the $30,000 mark, as surging interest rates reduced demand for the world’s biggest cryptocurrency.
Bitcoin prices were last seen 5.7% lower on the session at $29,568.62, a move that extends its year-to-date decline to around 36%, with Coindesk reporting that over $200 million in positions have been liquidated over the past seven days.
On Wall Street, futures tied to the Dow Jones Industrial Average indicating a 205 point opening bell dip while those linked the S&P 500 are priced for a 33 point move to the downside. Futures linked to the Nasdaq are looking at 130 point opening bell slide.
Another retail stock, Kohl’s Corp. (KSS) – Get Kohl’s Corporation Report, was also in focus as the group entered exclusive talks with the Franchise Group (FRG) – Get Franchise Group Inc. Report over a possible $8 billion takeover. Gains were limited by Target’s margin warning, but the shares are still marked 10.2% higher in pre-market trading at $46.40 each.
Twitter (TWTR) – Get Twitter Inc. Report shares were also active, falling 1.8% as investors continue to discount the chances of Tesla (TSLA) – Get Tesla Inc. Report CEO Elon Musk completing his $44 billion takeover bid for the micro-blogging website.
