Bond Yields Likely To Be In Focus Following Recent Spike

The major U.S. index futures are currently pointing to a mixed open on Friday following the sell-off seen over the course of the previous session.

Traders are likely to keep a close eye on activity in the bond markets, as the performance of treasury yields has been a key driver of trading in recent sessions.

Yields on long-term securities like ten-year notes and thirty-year bonds have recently jumped to their highest levels in a year, leading to concerns about higher interest rates.

Currently, the yields on ten-year notes and thirty-year bonds are moving lower, which may lead to buying interest in high-flying tech stocks.

Overall trading activity may be somewhat subdued, however, as traders remain cautious following the volatility seen over the past few days.

In the U.S. economic news, the Commerce Department released a report showing U.S. personal income skyrocketed in the month of January, reflecting the issuance of $600 stimulus checks.

Stocks moved sharply lower over the course of the trading session on Thursday, more than offsetting the rally seen on Wednesday. The major averages came under pressure in early trading and saw further downside as the day progressed.

The major averages all saw substantial weakness, with the tech-heavy Nasdaq posting a particularly steep loss. The Nasdaq plunged 478.54 points or 3.5 percent to 13,119.43, its lowest closing level in nearly a month.

The Dow also tumbled 559.85 points or 1.8 percent to 31,402.01 and the S&P 500 plummeted 96.09 points or 2.5 percent to 3,829.34.

The sell-off on Wall Street came amid a continued increase in treasury yields, which led to renewed concerns about interest rates despite Federal Reserve Chair Jerome Powell’s assurances of ultra-easy monetary policy for the foreseeable future.

The yields on ten-year notes and thirty-year bonds once again rose to their highest levels in a year, with the ten-year yield briefly spiking above 1.6 percent in intraday trading.

The increase in yields came following the release of a batch of largely upbeat U.S. economic data, including a report from the Labor Department showing a steep drop in first-time claims for U.S. unemployment benefits in the week ended February 20th.

The Labor Department said initial jobless claims tumbled to 730,000, a decrease of 111,000 from the previous week’s revised level of 841,000.

Economists had expected jobless claims to drop to 838,000 from the 861,000 originally reported for the previous week.

With the much bigger than expected decrease, jobless claims fell to their lowest level since hitting 716,000 in the week ended November 28th.

The Commerce Department also released a report showing new orders for U.S. manufactured durable goods spiked by much more than expected in the month of January.

The report said durable goods orders soared by 3.4 percent in January after jumping by an upwardly revised 1.2 percent in December.

Economists had expected durable goods orders to surge up by 1.1 percent compared to the 0.5 percent increase that had been reported for the previous month.

Excluding a sharp increase in orders for transportation equipment, durable goods orders still jumped by 1.4 percent in January after spiking by an upwardly revised 1.7 percent in December.

Ex-transportation orders had been expected to climb by 0.7 percent, matching the increase that had been reported for the previous month.

A separate report released by the Commerce Department showed U.S. gross domestic product jumped by slightly more than originally estimated in the fourth quarter of 2020.

The Commerce Department said GDP surged up by 4.1 percent in the fourth quarter compared to the previously reported 4.0 percent spike. The upward revision matched economist estimates.

Semiconductor stocks turned in some of the market’s worst performances on the day, resulting in a 5.8 percent nosedive by the Philadelphia Semiconductor Index.

Substantial weakness was also visible among housing stocks, as reflected by the 4.8 percent plunge by the Philadelphia Housing Sector Index.

The sell-off by housing stocks came after the National Association of Realtors released a report showing a steep drop in U.S. pending home sales in the month of January, with inventory constraints continuing to hold back prospective buyers.

Airline stocks also pulled back sharply after soaring in recent sessions, with the NYSE Arca Airline Index plummeting by 4.3 percent after ending Wednesday’s trading at its highest closing level in a year.

Computer hardware, gold, steel and software stocks also saw considerable weakness on the day, moving notably lower along with most of the other major sectors.

Commodity, Currency Markets

Crude oil futures are slumping $1.29 to $62.24 a barrel after rising $0.31 to $63.53 a barrel on Thursday. Meanwhile, after plunging $22.50 to $1,775.40 an ounce in the previous session, gold futures are sliding $12.60 to $1,762.80 an ounce.

On the currency front, the U.S. dollar is trading at 106.29 yen versus the 106.21 yen it fetched at the close of New York trading on Thursday. Against the euro, the dollar is valued at $1.2119 compared to yesterday’s $1.2175.

Asia

Asian stocks hit one-month lows on Friday as a rout in global bond markets sent yields flying and sapped investors’ appetite for riskier assets.

China’s Shanghai Composite Index tumbled 75.97 points, or 2.1 percent, to 3,509.08 amid a global equity market rout. Hong Kong’s Hang Seng Index ended down 1,093.96 points, or 3.6 percent, at 28,980.21.

Japanese shares led regional losses as a spike in yields of U.S. and Japanese long-term bonds triggered concerns about market stability. The Nikkei 225 Index plummeted 1,202.26 points, or 4 percent, to 28,966.01, logging the biggest point drop since June 2016.

The broader Topix ended down 61.74 points, or 3.2 percent, at 1,864.49, with electric appliance, pulp and paper and real estate issues pacing the decliners. Taiyo Yuden, Dentsu, Pacific Metals, Advantest and Nissan Chemical Industries fell 6-8 percent.

On the economic front, Japanese industrial output rose 4.2 percent sequentially in January, while retail sales dropped 2.4 percent year-on-year, separate reports showed.

Australian markets ended sharply lower, with surging U.S bond yields, weaker bullion prices and a sell-off in high-flying tech stocks weighing on the markets. Yields came off early peaks as the Reserve Bank of Australia launched an unscheduled offer to buy three-year government bonds.

The benchmark S&P/ASX 200 Index plunged 160.70 points, or 2.4 percent, to 6.673.30 – marking its worst session in about six months and hitting a nearly four-week low. The broader All Ordinaries Index dove 165.10 points, or 2.3 percent, to finish at 6,940.60.

Tech stocks succumbed to heavy selling pressure, with Afterpay losing 11 percent. Mining heavyweights BHP and Rio Tinto fell 2.6 percent and 1.3 percent, respectively, while smaller rival Fortescue Metals Group lost 4.5 percent.

Origin Energy and Woodside Petroleum tumbled more than 3 percent as oil prices fell amid dollar strength. The big four banks fell over 2 percent each.

Commercial explosive firm Orica slumped 18 percent after flagging pandemic-related disruptions to mining activity in several regions.

Seoul stocks lost ground on worries about a possible spike in inflation. The Kospi ended down 86.74 points, or 2.8 percent, at 3,012.95. LG Chem shares plunged 6.6 percent, while Samsung Biologics, Samsung Electronics and SK Hynix gave up 3-5 percent.

Europe

European stocks have fallen on Friday, though the downside remains capped as global bond markets attempted to recover from an aggressive sell-off that drove steep losses in Treasuries.

While the U.K.’s FTSE 100 Index has tumbled by 1.7 percent, the French CAC 40 Index is down by 1 percent and the German DAX Index is down by 0.5 percent.

Building material company LafargeHolcim has moved to the downside despite reporting slightly stronger earnings in the fourth quarter.

Natural gas and electricity supplier Engie has also fallen after it slipped to a net loss in FY20. The company reported that its fiscal 2020 net loss Group share was 1.5 billion euros compared to the prior year’s profit of 1 billion euros.

Law Debenture Corp shares have also dropped. The company reported a pre-tax profit of 4.1 million pounds for fiscal 2020 compared to 131.4 million pounds in the prior year.

Real estate company Rightmove has also slumped after reporting a sharp drop in both revenues and profits for last year.

Meanwhile, chemicals giant BASF has edged higher. The company expects 2021 earnings to rise as much as 38 percent if lockdown measures are eased.

Telecommunications company Deutsche Telekom has also moved to the upside after its fourth-quarter profit soared on higher revenue.

Retail company Pets At Home Group has moved sharply higher after upgrading its full-year outlook.

Jupiter Fund Management has also rallied. The company ended 2020 with its assets under management at a record high.

In economic news, the French economy contracted more than initially estimated in the fourth quarter, revised data from the statistical office Insee showed.

Due to the second national lockdown and curfews, gross domestic product fell 1.4 percent sequentially in the fourth quarter.

This was slightly bigger than the 1.3 percent fall estimated on January 29. The economy had rebounded 18.5 percent in the third quarter.

U.S. Economic Reports

Reflecting an increase in government benefits in response to the COVID-19 pandemic, the Commerce Department released a report on Friday showing U.S. personal income skyrocketed in the month of January.

The Commerce Department said personal income spiked by 10.0 percent in January after rising by 0.6 percent in December. Economists had expected personal income to soar by 9.5 percent.

The report also showed a significant rebound in personal spending, which surged up by 2.4 percent in January after falling by a revised 0.4 percent in December.

Economists had expected personal spending to jump by 2.5 percent compared to the 0.2 percent dip originally reported for the previous month.

At 9:45 am ET, MNI Indicators is due to release its report on Chicago-area business activity in the month of February. The Chicago business barometer is expected to drop to 61.1 in February from 63.8 in January, but a reading above 50 would still indicate growth.

The University of Michigan is scheduled to release its revised reading on consumer sentiment in the month of February at 10 am ET.

The consumer sentiment index for February is expected to be upwardly revised to 76.5 from the preliminary reading of 76.2, which was down from 79.0 in January.

Stocks In Focus

Shares of DoorDash (DASH) are moving sharply lower in pre-market trading after the food delivery company reported a substantial increase in fourth quarter revenues but forecast a slowdown in orders.

Athletic apparel and footwear retailer Foot Locker (FL) is also likely to come under pressure after reporting fourth quarter earnings that beat estimates but on weaker than expected sales.

Shares of Salesfore (CRM) may also move to the downside after the business software company reported better than expected fourth quarter results but provided a disappointing profit forecast.

On the other hand, shares of Etsy (ETSY) are seeing significant pre-market strength after the online crafts marketplace reported better than expected fourth quarter results and provided upbeat guidance.

Online mortgage and financial services provider Rocket Companies (RKT) is also likely to soar after reporting fourth quarter results that beat analyst estimates on both the top and bottom lines.

Shares of Beyond Meat (BYND) may also see initial strength as news the plant-based meat maker has reached exclusive supply deals with McDonald’s (MCD) and Yum! Brands (YUM) has overshadowed the company’s wider than expected fourth quarter loss.