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Rising Treasury Yields May Generate Selling Pressure

The major U.S. index futures are pointing to a lower opening on Tuesday, with stocks likely to move to the downside following the volatility seen in the previous session.

A continued increase in U.S. treasury yields is likely to weigh on the markets as the bond markets reopen following the Columbus Day holiday on Monday.

Upbeat economic data has pushed treasury yields higher in recent sessions, raising concerns the Federal Reserve may raise interest rates more aggressively than previously anticipated.

The ten-year yield has reached its highest levels in well over seven years, while the thirty-year bond yield has climbed to its highest level since 2014.

News the International Monetary Fund has lowered its forecast for U.S. and Chinese economic growth may also generate some selling pressure on Wall Street.

Citing the "negative effect of recent tariff actions," the IMF said economic growth in the U.S. and China is now expected to slow to 2.5 percent and 6.2 percent, respectively, next year.

Overall trading activity may be somewhat subdued, however, as a lack of major U.S. economic data may keep some traders on the sidelines.

Stocks saw considerable volatility during trading on Monday, as many traders remained away from their desks amid the Columbus Day holiday. The major averages showed wild swings over the course of the trading session.

Eventually, the major averages ended the day mixed. While the Dow rose 39.73 points or 0.2 percent to 26,486.78, the Nasdaq slid 52.50 points or 0.7 percent to 7,735.95 and the S&P 500 edged down 1.14 points or less than a tenth of a percent to 2,884.43.

The volatility on Wall Street came on the heels of the notable weakness seen over the final two sessions of the previous week.

A jump in treasury yields contributed to the pullback seen late last week, as traders expressed renewed concerns about the outlook for interest rates.

The yield on the ten-year note reached its highest closing level in over seven years last Friday following the release of the monthly jobs report.

Traders seemed reluctant to make significant moves on Monday, as the bond markets were closed along with banks and federal offices.

The holiday also led to a lack of U.S. economic data, although reports on producer and consumer prices are likely to attract attention in the coming days along with speeches by several Federal Reserve officials.

Most of the major sectors ended the day showing only modest moves, contributing the lackluster close by the broader markets.

Tobacco stocks saw substantial strength, however, with the NYSE Arca Tobacco Index spiking by 9.4 percent to a new record closing high.

A Food and Drug Administration crackdown on e-cigarettes has contributed to significant volatility among tobacco stocks over the past couple weeks.

Commercial real estate stocks also saw notable strength on the day, while weakness among biotechnology, computer hardware, and semiconductor stocks contributed to the drop by the tech-heavy Nasdaq.

Commodity, Currency Markets

Crude oil futures are climbing $0.39 to $74.68 barrel after slipping $0.05 to $74.29 a barrel on Monday. Meanwhile, after tumbling $17 to $1,188.60 an ounce in the previous session, gold futures are inching up $0.30 to $1,188.90 an ounce.

On the currency front, the U.S. dollar is trading at 113.29 yen compared to the 113.23 yen it fetched at the close of New York trading on Monday. Against the euro, the dollar is valued at $1.1450 compared to yesterday's $1.1492.

Asia

Asian stocks ended mostly lower on Tuesday as investors fretted about the impact of rising interest rates, U.S.-China tensions and Italy's decision to expand budget deficits.

The trade war between China and the United States may intensify after China allowed its currency to slip past a psychological bulwark.

The International Monetary Fund has lowered its forecast for Chinese economic growth in 2019 to 6.2 percent from 6.4 percent, citing the "negative effect of recent tariff actions".

Chinese markets recovered from early losses to finish modestly higher amid bets that policymakers will increase support to counter the negative impact of the escalating trade war on Chinese exporters.

The benchmark Shanghai Composite Index rose 4.50 points or 0.2 percent to 2,721.01 after tumbling 3.7 percent on Monday. Hong Kong's Hang Seng Index ended marginally lower at 26,172.91.

Japanese shares fell notably to hit a three-week low as a firm yen added to investor worries over China and rising U.S. bond yields.

The Nikkei 225 Index slumped 314.33 points or 1.3 percent to 23,469.39, the lowest closing level since September 18th, as trading resumed after a holiday on Monday for the Health-Sports Day. The broader Topix Index closed 1.8 percent lower at 1,761.12.

Canon, Panasonic, Honda Motor and Toyota Motor dropped 2-3 percent as the dollar slipped against the yen on worries over Chinese growth and simmering anxiety about higher U.S. bond yields.

Machinery makers that have exposure to the Chinese market also fell, with Hitachi Construction Machinery and Murata Manufacturing falling around 2 percent.

Tokyo Electron slumped 4.5 percent and Advantest lost 4.4 percent after the Philadelphia Semiconductor Index fell sharply once again.

Australian markets tumbled, dragged down by miners, financials and healthcare companies. The benchmark S&P/ASX 200 Index lost 59.20 points or 1 percent to finish at 6,041.10, while the broader All Ordinaries Index ended down 63.10 points or 1 percent at 6,155.50.

Ramsay Health Care gave up 2.8 percent as its French subsidiary raised its takeover bid for European private hospital operator Capio by 20 percent to $1.28 billion. CSL plunged 4.5 percent, Cochlear plummeted 5.2 percent and ResMed declined 2.3 percent.

Lender Commonwealth Bank shed 0.9 percent after announcing it would pay back any "unauthorized advice fees" that were charged to dead customers.

Mining heavyweights BHP Billiton and Rio Tinto ended narrowly mixed, while gold miner Newcrest dropped nearly 1 percent.

Woodside Petroleum fell 1.4 percent and Oil Search retreated 1.8 percent after oil prices fell sharply on Monday before ending off their day's lows.

Europe

European stocks have turned lower on Tuesday as investors watched yuan movements and developments over Italy's budget plans for directional cues.

The euro languished near a seven-week low after Italian Economy Minister Giovanni Tria said he wanted to have constructive talks with EU partners over the 2019 budget.

After unveiling the DEF economic blueprint in parliament, Tria said there was "a lag in economic growth and employment, a lag that is no longer acceptable, 10 years since (the start of) the economic crisis."

Investors also watched Brexit developments, with the Confederation of Business Industry demanding that Philip Hammond use the budget on October 29th to bolster investment by 3.5 billion pounds to tackle Brexit uncertainty.

While the German DAX Index has fallen by 0.6 percent, the U.K.'s FTSE 100 Index is down by 0.5 percent and the French CAC 40 Index is down by 0.5 percent.

Banks gave up early gains after reports that the Italian government was planning investor roadshows to support the bond market.

Givaudan shares have also fallen. After reporting a rise in third quarter group sales, the Swiss manufacturer of fragrance and flavor products said it aims to outpace the market with 4-5 percent sales growth.

British advertising group WPP has dropped on news that Ford (F) has appointed another agency as its lead creative agency.

Meanwhile, insurer Aviva has moved higher as Mark Wilson quit as chief executive of the company. Wood Group has also jumped after securing a string of new midstream sector contracts across the U.S.

Greggs has soared after the bakery chain said that its total sales grew by 7.3 percent in the 13 weeks to September 29th.

U.S. Economic Reports

At 10 am ET, Chicago Federal Reserve President Charles Evans is scheduled to give opening remarks at the Opportunity Finance Network's annual conference in Chicago, Illinois.

New York Fed President John Williams is due to give a speech on recent developments in U.S. monetary policy at the New York Fed-Bank Indonesia Central Banking Forum in Bali, Indonesia, at 9:15 pm ET.

At 10:35 pm ET, Williams and Bank Indonesia Governor Perry Warjiyo are also scheduled to speak at a press conference organized by the New York Fed and Bank Indonesia.

Stocks In Focus

Shares of Affimed (AFMD) are moving sharply lower in pre-market trading after the biopharmaceutical company placed two clinical trials of its cancer treatment AFM11 on hold after one patient died and two others experienced life-threatening events.

Generic drugmaker Perrigo (PRGO) may also moved to the downside after announcing the appointment of Murray Kessler to replace Uwe Roehrhoff as President and CEO.

Shares of PPG Industries (PPG) are also seeing significant pre-market weakness after the paint and coatings maker warned of weaker than expected third quarter results due in part to higher raw material and logistics costs.

On the other hand, shares of Helen of Troy (HELE) are likely to see initial strength after the consumer products company reported better than expected fiscal second quarter results and raised its full-year guidance.

Electric car maker Tesla (TSLA) may also move to the upside after Macquarie initiated coverage of the company's stock with an Outperform rating and a price target of $430 per share.

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