U.S. equity futures are facing downward trends due to intensified selling in Treasury bonds following solid jobs data that decreased expectations for a significant interest rate cut by the Federal Reserve in the upcoming month. The robust jobs report led to a rise in bond yields (both the 2-year and 10-year Treasury yields crossed the 4.00% mark) and an increase in oil prices as Brent crude nears $80 per barrel. With the S&P futures down 0.4% and the Nasdaq futures down 0.6%, major tech stocks such as Amazon (AMZN), Apple (AAPL), and Nvidia (NVDA) have seen declines ranging from 1.2% to 1.9%. Against this backdrop, market participants are now re-evaluating swap markets, which are pricing in minimal cutting of the rates, down from earlier predictions that anticipated a more substantial cut.
In commodity markets, oil has surged an additional 2.3%, driven by escalating fears regarding the geopolitical situation, particularly the conflict in the Middle East. Speculation of military action from Israel following an Iranian missile strike has created a bullish sentiment towards oil. The week ahead is crucial with key macroeconomic highlights such as the Consumer Price Index (CPI) scheduled for Thursday and a series of Federal Reserve officials set to speak. Additionally, significant tech events including Nvidia’s AI Summit and Amazon’s Prime Day are expected to dominate headlines, alongside the commencement of Q3 earnings reports from major banks on Friday.
On the premarket stage, Pfizer’s stock rose over 2% following reports of a $1 billion stake taken by activist investor Starboard Value. Arcadium Lithium Plc vaulted 29% after Rio Tinto Plc expressed interest in a non-binding takeover. Several notable movements were seen, such as Air Products which experienced a 6% increase on news of a stake by activist investors. Wynn Resorts, alongside its peers, enjoyed gains as it secured a commercial gaming license in the UAE. However, Garmin suffered a decline after Morgan Stanley downgraded its rating, referencing concerns about product launches.
Amidst the backdrop of a robust U.S. economy, the recent drop in expectations for aggressive interest rate cuts may prove burdensome for equity markets that have recently reached record highs. Equity strategist Marija Veitmane of State Street Global Markets expressed a cautious yet constructive outlook on equities, emphasizing the resilience of economies and the easing of inflation pressures. However, with less optimistic cuts looming, the market sentiment could face headwinds. The impending U.S. inflation data on Thursday, predicted to show a slight year-on-year price growth slowdown, adds additional scrutiny as earnings season begins, with overall earnings growth expected to moderate relative to previous quarters.
In European markets, stock indices have shown slight declines amid rising bond yields. The Stoxx 600 index dipped 0.4%, primarily affected by higher rates in sectors sensitive to interest, including real estate and technology. Heidelberg Materials AG boosted shares after reports of acquisition talks with the Adani Group. Meanwhile, Germany’s economic challenges deepened as the industrial production numbers tumbled unexpectedly, reviving skepticism about the effectiveness of China’s economic influence on European recovery. Key movements included Shell’s modest rise following an upbeat Q3 update, and notable downgrades affecting Bayer and Neste.
Across Asia, stock markets saw a rebound from a three-day downtrend as trades were buoyed by a weaker yen, coupled with a rally in Hong Kong stocks amidst expectations of support measures from Beijing. The MSCI Asia Pacific Index rose, driven primarily by Japanese exporters due to yen depreciation, following a strong U.S. jobs report. Meanwhile, traders prepared for China’s economy to resume trading after its Golden Week holiday, reflecting confidence in investments with growing optimism about the forthcoming stimulus measures.
In the foreign exchange market, the Bloomberg Dollar Spot Index remained steady, with the yen gaining slightly against the dollar, despite divergent expectations. U.S Treasury yields continued to rise post-report, with the 10-year yield reaching levels not observed since early August. As pressures mount from both geopolitical tensions and domestic economic pressures, the market anticipates key upcoming economic data, including CPI and PPI, along with several scheduled U.S. Federal Reserve speeches that could influence future market trajectories. In the backdrop, concerns about the intensifying conflict in the Middle East and rising oil prices potentially stoking inflationary pressures cast a shadow over the global economic outlook, increasing emphasis on forthcoming data and policy directions.