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Beyond the Numbers

Continued Pullback By Treasury Yields May Extend Rally On Wall Street
2/26/2018 9:04 AM

The major U.S. index futures are pointing to a higher opening on Monday, with stocks poised to extend the rally seen last Friday.

Early buying interest may be generated by reaction to a continued drop by treasury yields, as the ten-year yield is pulling back further off the ten-year closing high set last Wednesday.

Trading activity may be somewhat subdued, however, with traders looking ahead to the release of several key economic reports.

Shortly after the start of trading, the Commerce Department is scheduled to release its report on new home sales in the month of January.

Reports on durable goods orders, consumer confidence, pending home sales, personal income and spending and manufacturing activity are also likely to attract attention in the coming days.

Additionally, new Federal Reserve Chair Jerome Powell is scheduled to deliver his semi-annual monetary policy report to Congress this week.

Traders are likely to keep a close eye on Powell’s remarks amid lingering concerns about the outlook for interest rates.

After initially moving higher, stocks saw further upside over the course of the trading session on Friday. The major averages showed a significant advance after ending the previous session on opposite sides of the unchanged line.

The major averages ended the session at their best levels of the day. The Dow jumped 347.51 points or 1.4 percent to 25,309.99, the Nasdaq soared 127.31 points or 1.8 percent to 7,337.39 and the S&P 500 shot up 43.34 points or 1.6 percent to 2,747.30.

With the rally on the day, the major averages moved higher for the week. The Nasdaq surged up by 1.4 percent, while the S&P 500 and the Dow rose by 0.6 percent and 0.4 percent, respectively.

A continued drop by treasury yields contributed to the rally on Wall Street, with the ten-year yield pulling back further off the four-year closing high set on Wednesday.

The continued rebound by treasuries came as the Federal Reserve issued its monetary policy report to Congress, with the central bank hinting that it still plans three interest rates hikes in 2018.

"The federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run," the Fed said, suggesting a gradual pace of rate hikes.

Light trading activity may have exaggerated the upward move, as some traders stayed on the sidelines amid a lack of major U.S. economic data.

Oil service stocks showed a significant move to the upside on the day, driving the Philadelphia Oil Service Index up by 2.8 percent. The strength among oil service stocks came amid a notable increase by the price of crude oil.

Considerable strength was also visible among utilities stocks, as reflected by the 2.6 percent jump by the Dow Jones Utilities Average. The interest rate-sensitive sector likely benefited from the continued pullback by treasury yields.

Semiconductor, natural gas, biotechnology, and telecom stocks also moved notably higher on the day, reflecting broad based buying interest on Wall Street.

Commodity, Currency Markets

Crude oil futures are slipping $0.17 to $63.38 a barrel after climbing $0.78 to $63.55 a barrel last Friday. Meanwhile, an ounce of gold is trading at $1,339.10, up $8.80 from the previous session’s close of $1,330.30. On Friday, gold fell $2.40.

On the currency front, the U.S. dollar is trading at 106.85 yen compared to the 106.89 yen it fetched at the close of New York trading on Friday. Against the euro, the dollar is valued at $1.2308 compared to last Friday’s $1.2295.

Asia

Asian stocks finished broadly higher on Monday as oil prices climbed and the Federal Reserve's monetary policy report released on Friday suggested a gradual pace of interest rate hikes in 2018.

U.S. bond yields declined from recent four-year highs as investors awaited U.S. inflation data and the first House testimony by the new head of the Federal Reserve for further insight on inflation and interest rates.

Chinese stocks rose for the sixth straight session ahead of the official and Caixin purchasing managers' indexes due this week.

The benchmark Shanghai Composite index rallied 41.23 points or 1.23 percent to finish at 3,330.25, while Hong Kong's Hang Seng index climbed 231.43 points or 0.74 percent to 31,498.60 after China's ruling Communist Party proposed scrapping term limits for the country's president.

Japanese shares rallied on the back of sharp rises in U.S. stocks on Friday. The benchmark Nikkei jumped 260.85 points or 1.19 percent to 22,153.65 while the broader Topix index closed 0.81 percent higher at 1,774.81 ahead of a barrage of data due this week.

Automakers Honda Motor and Mazda Motor rose over 1 percent while index heavyweights SoftBank and Fast Retailing gained 1.7 percent and 1.5 percent, respectively.

Inpex gained 1 percent and Japan Petroleum jumped 2.7 percent after crude oil prices gained more than 1 percent on Friday. Sharp Corp jumped over 4 percent on a Nikkei report that it would set up a joint venture with a Hon Hai subsidiary.

Australian shares rose for a fourth day, thanks to rising oil and iron ore prices as well as solid earnings results. The benchmark S&P/ASX200 index gained 42.40 points or 0.71 percent to finish above 6,000 points for the first time since February 5, while the broader All Ordinaries index ended up 40.90 points or 0.67 percent at 6,146.10.

Beach Energy advanced 1.5 percent and Woodside Petroleum rallied 1.8 percent as global oil prices hovered near three-week highs, helped by comments from Saudi Arabia that it would continue to curb exports to stabilize oil markets.

Mining heavyweights BHP Billiton and Rio Tinto ended on a mixed note. BlueScope Steel jumped 2.3 percent after the company extended its share buyback by a further $150 million for a second time. Ardent Leisure rose 2.9 percent after narrowing its first-half loss.

The big four banks rose between 1.3 percent and 1.9 percent after comments from a Fed official helped ease concerns about a faster pace of rate hikes in the U.S.

Gold miner Newcrest dropped 1.2 percent after it agreed to take a minority stake in Toronto-listed Lundin Gold.

Insurer QBE tumbled 3.3 percent after it swung to a full-year $US1.25 billion ($A1.6 billion) loss. Telco service provider Amaysim declined 3.9 percent after saying it would not declare interim dividend for 2018.

Europe

European stocks are trading higher on Monday as U.S. rate hike fears ebbed and investors waited for the SPD vote to join a German coalition government with Angela Merkel. The euro has climbed ahead of ECB President Mario Draghi's appearance in the European Parliament.

The pound has edged higher against the dollar after Bank of England Deputy Governor Dave Ramsden said in an interview with the Sunday Times that U.K. interest rates are likely to rise somewhat sooner rather than later, if wage growth improves.

Ramsden said he would keep a close eye on what happens through the early part of this year to see if a forecast of wage growth picking up to 3 percent is realized.

While the German DAX Index has risen by 0.4 percent, the French CAC 40 Index is up by 0.6 percent and the U.K.’s FTSE 100 Index is up by 0.7 percent.

Ericsson and Nokia have rallied after reports that the 5G rollout will likely take place a year ahead of schedule.

German automaker Volkswagen has also climbed after more than doubling its 2017 profit and reportedly settling a lawsuit over the company's marketing of clean emissions vehicles.

Associated British Foods has also advanced. The British food processing and retail company has kept its outlook for the group unchanged, with progress expected in both adjusted operating profit and adjusted earnings per share.

Meanwhile, underwriter Hiscox has tumbled in London after its profit before tax slumped by more than 300 million pounds.

U.S. Economic Reports

At 10 am ET, the Commerce Department is scheduled to release its report on new home sales in the month of January.

New home sales are expected to jump by 3.2 percent to an annual rate of 645,000 in January after tumbling by 9.3 percent to a rate of 625,000 in December.
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