Pullback By Bond Yields May Lead To Strength On Wall Street

The major U.S. index futures are currently pointing to a higher open on Tuesday, with stocks likely to move mostly higher following the starkly mixed performance seen in the previous session.

The upward momentum on Wall Street comes amid a pullback by treasury yields, with the yields on ten-year notes and thirty-year bonds showing notable moves to the downside.

The drop by the yield on the benchmark ten-year note comes after ended it the previous session at its highest closing level in over a year.

Yields, which move opposite of bond prices, are moving lower as treasuries rebound following recent weakness as traders go bargain hunting.

The jump in yields seen in the previous session led to a sell-off by technology stocks, resulting in a steep drop by the tech-heavy Nasdaq.

Tech stocks may subsequently lead the way higher in early trading, with Apple (AAPL), Microsoft (MSFT) and Amazon (AMZN) seeing notable strength in pre-market trading.

Nonetheless, overall trading activity may be somewhat subdued, as a lack of major U.S. economic data keeps comes traders on the sidelines.

Traders may look ahead to Wednesday’s report on consumer prices amid recent concerns about the outlook for inflation.

Stocks turned in a starkly mixed performance during trading on Monday, as the Dow jumped to a new record intraday high but the tech-heavy Nasdaq showed a sharp pullback. The S&P 500 spent much of the day in positive territory before closing in the red.

The Dow ended the session well of its best levels of the day but still closed up 306.14 points or 1 percent at 31,802.44. Meanwhile, the Nasdaq plunged 310.99 points or 2.4 percent to 12,609.16, its lowest closing level in almost three months, and the S&P 500 slid 20.59 points or 0.5 percent to 3,821.35.

The mixed performance on Wall Street came in reaction to news the Senate voted along party lines on Saturday to approve a new $1.9 trillion coronavirus relief bill.

The bill, which includes $1,400 direct payments and an extension of unemployment benefits, is expected to be approved by the House later this week.

Democrats were forced to use the reconciliation process to pass the legislation without any Republican support, although a new relief package was always widely expected on Wall Street.

Passage of the stimulus bill contributed to an increase in treasury yields, inspiring traders to rotate out of high-flying tech stocks and into cyclicals.

The ten-year yield pulled back after reaching an intraday high above 1.6 percent but still ended the session at its highest closing level in over a year.

On the U.S. economic front, a report released by the Commerce Department showed wholesale inventories in the U.S. jumped in line with economist estimates in the month of January.

The Commerce Department said wholesale inventories spiked by 1.3 percent in January after climbing by an upwardly revised 0.6 percent in December.

Economists had expected wholesale inventories to surge up by 1.3 percent compared to the 0.3 percent increase originally reported for the previous month.

Airline stocks showed a substantial move to the upside on the day, driving the NYSE Arca Airline Index up by 4.8 percent.

Significant strength was also visible among telecom stocks, as reflected by the 2.6 percent jump by the NYSE Arca North American Telecom Index.

Housing, banking and oil service stocks also saw considerable strength, with the gains by oil service stocks coming despite a pullback by the price of crude oil.

On the other hand, semiconductor stocks showed a significant move to the downside, dragging the Philadelphia Semiconductor Index down by 5.4 percent to its lowest closing level in two months.

Software and biotechnology stocks also saw notable weakness on the day, contributing to the steep drop by the Nasdaq.

Commodity, Currency Markets

Crude oil futures are slipping $0.16 to $64.89 a barrel after slumping $1.04 to $65.05 a barrel on Monday. Meanwhile, after tumbling $20.50 to $1,678 an ounce in the previous session, gold futures are spiking $29.90 to $1,707.90 an ounce.

On the currency front, the U.S. dollar is trading at 108.84 yen compared to the 108.89 yen it fetched at the close of New York trading on Monday. Against the euro, the dollar is valued at $1.1896 compared to yesterday’s $1.1847.

Asia

Asian stocks turned in a mixed performance on Tuesday amid worries that too much stimulus will spark excessive inflation and hurt high-growth companies reliant on easy borrowing.

Chinese stocks slumped amid signs that top financial regulators will take more action to curb debt levels and prevent asset bubbles from forming.

The benchmark Shanghai Composite Index lost 62.12 points, or 1.8 percent, to finish at 3,359.29, while Hong Kong’s Hang Seng Index climbed 232.40 points, or 0.8 percent, to 28,773.23.

Japanese shares rose sharply as the yen retreated after the release of weak GDP and household spending data. The Nikkei 225 Index jumped 284.69 points, or 1 percent, to 29,027.94, while the broader Topix closed 1.3 percent higher at 1,917.68.

Heavyweight SoftBank Group climbed 3.2 percent and automakers Toyota Motor, Honda Motor and Nissan jumped 3-4 percent, while tech stocks followed their U.S. peers lower. Advantest and Screen Holdings fell about 2 percent.

Japan’s GDP climbed an annualized 11.7 percent in the fourth quarter of 2020, the Cabinet Office said, missing expectations for an increase of 12.8 percent following the 22.9 percent surge in the three months prior.

On a quarterly basis, GDP gained 2.8 percent, again missing forecasts for 3.0 percent and down from 5.3 percent in the previous three months.

Another report showed average household spending in Japan was down 6.1 percent year-on-year in January – missing expectations for a decline of 2.1 percent following the 0.6 percent contraction in December. On a monthly basis, household spending was down 7.3 percent.

Australian markets gained ground amid hopes for faster a economic recovery from the coronavirus pandemic. Sentiment was also boosted after a prominent survey showed business confidence rose to decade highs in February.

The benchmark S&P/ASX 200 Index rose 31.60 points, or 0.5 percent, to 6,771.20, while the broader All Ordinaries Index ended up 28.80 points, or 0.4 percent, at 7,000.40.

The big four banks rose between 0.7 percent and 1.3 percent. AMP rallied 2.5 percent after the wealth manager decided to sell the global equities business of its asset management arm to Canadian investment manager Fiera Capital for an undisclosed sum. Perpetual jumped 3.6 percent and Macquarie Group added 2.4 percent.

Tech stocks suffered heavy losses, with Afterpay tumbling 3.6 percent and Xero losing 3.8 percent. Gold miners Evolution Mining and Newcrest fell over 1 percent as gold prices lingered near nine-month lows.

Fibre network owner Vocus Group surged 8.6 percent after it agreed to a scheme implementation deed with Macquarie Infrastructure and Real Assets (MIRA) and pension fund Aware Super.

Seoul stocks ended lower for the fourth straight day amid growing concerns over post-pandemic inflation. The Kospi average dropped 19.99 points, or 0.7 percent, to 2,976.12 amid massive foreign selling as bond yields in the region scaled new peaks. Naver, Samsung SDI and LG Chem gave up 2-3 percent.

South Korea posted a current account surplus of $7.06 billion in January, the Bank of Korea said in a report, down from $11.51 billion in December. The goods account surplus widened to $5.73 billion, compared to $2.07 billion in January 2020.

Europe

European stocks have moved higher on Tuesday as Eurozone government bond yields dip across the board, helping ease worries around inflation and higher interest rates.

U.S. Treasury Secretary Janet Yellen said on Monday that President Joe Biden’s coronavirus aid package would provide enough resources to fuel a “very strong” U.S. economic recovery and that “there are tools” to address inflation if it becomes a problem.

While the German DAX Index has risen by 0.4 percent, the French CAC 40 Index is up by 0.3 percent and the U.K.’s FTSE 100 Index is up by 0.2 percent.

Domino’s Pizza Group shares have soared after the pizza chain reported strong full-year results on lower costs.

Logistics group Deutsche Post has also moved higher after reporting an increase in fourth-quarter net profit and raising mid-term targets.

Meanwhile, German automotive parts maker Continental AG has plunged. After reporting a 15 percent drop in adjusted sales in 2020, the company said the effects of the ongoing coronavirus pandemic remain a source of uncertainty in 2021.

Novartis has also moved lower. The Swiss drug maker said that a phase III CANOPY-2 trial did not meet the primary endpoint of overall survival in patients with advanced or metastatic non-small cell lung cancer.

The world’s largest inter-dealer broker TP ICAP has also slumped after it posted lower annual adjusted earnings and halved its dividend, citing a one-off reduction.

Symrise, a flavor and fragrance maker, has also moved to the downside after its 2020 core profit missed expectations.

In economic news, German export growth accelerated in January, while imports logged a faster than expected decline, data from Destatis revealed today.

Exports unexpectedly grew by 1.4 percent month-on-month, faster than the 0.4 percent rise in December. Economists had forecast a decline of 1.2 percent.

At the same time, imports decreased 4.7 percent after staying flat in the previous month. Imports were expected to drop 0.5 percent.

Elsewhere, data out of the U.K. showed the country’s retail sales returned to growth last month, prompted by the prime minister’s roadmap to reopening announcement.

Total retail sales grew 1 percent on a yearly basis in February, while like-for-like sales advanced 9.5 percent, the British Retail Consortium said.

U.S. Economic Reports

The Treasury Department is scheduled to announce the results of this month’s auction of $58 billion worth of three-year notes at 1 pm ET.

At 6:05 pm ET, Dallas Federal Reserve President Robert Kaplan is due to participate in a moderated conversation on national and global economic issues before a virtual Global Perspectives series.

Stocks In Focus

Shares of Del Taco (TACO) are moving sharply higher in pre-market trading after the restaurant chain reported fourth quarter results that exceeded analyst estimates on both the top and bottom lines.

Children’s apparel retailer Children’s Place (PLCE) is also likely to see initial strength after reporting an unexpected fourth quarter profit on sales that beat expectations.

On the other hand, shares of Stitch Fix (SFIX) are likely to come under pressure after the online personal styling service reported weaker than expected fiscal second quarter results and lowered its full-year guidance.

Sporting goods retailer Dick’s Sporting Goods (DKS) is also seeing significant pre-market weakness after reporting better than expected fourth results but forecasting full-year earnings toward the low end of analyst estimates.