Jump By Treasury Yields May Weigh On Wall Street

The major U.S. index futures are currently pointing to a lower open on Wednesday, with the Nasdaq futures showing a notable decline.

The downward momentum for the tech-heavy Nasdaq comes as treasury yields are once again spiking ahead of the Federal Reserve’s monetary policy announcement this afternoon.

The yields on ten-year notes and thirty-year bonds have jumped to their highest intraday levels in over a year, raising concerns about the outlook for interest rates.

While the Fed is widely expected to maintain its ultra-easy money policy, traders will be paying close attention to the central bank’s updated forecasts for the economy, inflation and interest rates.

Some traders are also hoping Fed Chair Jerome Powell will address the recent spike in treasury yields in his post-meeting press conference.

After ending Monday’s trading firmly positive, the major U.S. stock indexes turned in a mixed performance during trading on Tuesday. While the tech-heavy Nasdaq edged higher, the Dow and the S&P 500 pulled back off Monday’s record closing highs.

The Nasdaq gave back ground after jumping as much as 1.2 percent but still ended the day up 11.86 points or 0.1 percent at 13,471.57. Meanwhile, the Dow fell 127.51 points or 0.4 percent to 32,825.95 and the S&P 500 dipped 6.23 points or 0.2 percent to 3,962.71.

The mixed close on Wall Street came as traders looked ahead to the Federal Reserve’s monetary policy announcement.

Ahead of the Fed announcement, treasury yields saw considerable volatility on the day before closing modestly higher.

With the Fed in focus, traders largely shrugged off a batch of disappointing U.S. economic data, including a Commerce Department report showing retail sales pulled back by much more than anticipated in the month of February.

The Commerce Department said retail sales plunged by 3.0 percent in February after soaring by an upwardly revised 7.6 percent in January.

Economists had expected retail sales to dip by 0.5 percent compared to the 5.3 percent spike originally reported for the previous month.

Excluding a drop in auto sales, retail sales still tumbled by 2.7 percent in February after skyrocketing by 8.3 percent in January. Ex-auto sales were expected to edge down by 0.1 percent.

The Federal Reserve also released a report showing an unexpected slump in U.S. industrial production in February, with steep drops in manufacturing and mining output more than offsetting a sharp increase in utilities output.

The Fed said industrial production tumbled by 2.2 percent in February after jumping by an upwardly revised 1.1 percent in January.

The pullback surprised economists, who had expected industrial production to climb by 0.6 percent compared to the 0.9 percent increase originally reported for the previous month.

The Fed said the severe winter weather in the south central region of the country in mid-February accounted for the bulk of the declines in output for the month.

Energy stocks turned in some of the market’s worst performances on the day, moving lower along with the price of crude oil. Crude for April delivery slid $0.59 to $64.80 a barrel.

Reflecting the weakness in the energy sector, the Philadelphia Oil Service Index plunged by 4 percent and the NYSE Arca Oil Index tumbled by 2.8 percent.

Profit taking also contributed to considerable weakness among airline stocks, resulting in a 3.5 percent nosedive by the NYSE Arca Airline Index. The index ended Monday’s trading at its best closing level in almost three years.

Financial stocks also saw notable weakness on the day, with the NYSE Arca Broker/Dealer Index and the KBW Bank Index falling by 1.5 percent and 1.3 percent, respectively.

On the other hand, semiconductor stocks extended Monday’s rally, with the Philadelphia Semiconductor Index advancing by 1.3 percent.

Commodity, Currency Markets

Crude oil futures are falling $0.61 to $64.19 a barrel after sliding $0.59 to $64.80 a barrel on Tuesday. Meanwhile, an ounce of gold is trading at $1,728.40, down $2.50 compared to the previous session’s close of $1,730.90. On Tuesday, gold inched up $1.70.

On the currency front, the U.S. dollar is trading at 109.16 yen compared to the 109.00 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is trading at $1.1914 compared to yesterday’s $1.1903.

Asia

Asian stocks fell in muted trading on Wednesday as investors looked ahead to the Federal Reserve’s monetary policy announcement due out later in the day.

With bond markets flagging the threat of inflation, market participants are looking for the central bank’s forecasts for the economy, inflation and interest rates.

Chinese and Hong Kong shares ended on a flat note as the U.S. sanctioned an additional 24 Chinese and Hong Kong officials over Beijing’s ongoing crackdown on political freedoms in the semi-autonomous city.

China’s benchmark Shanghai Composite Index finished marginally lower at 3,445.55, while Hong Kong’s Hang Seng Index ended marginally higher at 29,034.12.

Japanese shares ended a choppy session little changed after trade data for February showed the country’s exports dropped 4.5 percent year-on-year in February.

The Nikkei 225 Index slipped 6.76 points to 29,914.33, while the broader Topix closed 0.1 percent higher at 1,984.03.

Market heavyweight SoftBank Group fell over 2 percent, while Uniqlo operator Fast Retailing gained 0.9 percent. Automakers Honda Motor, Nissan and Mitsubishi Motors ended down 1-2 percent.

Shares of Tokyo Electric Power Co. Holdings plunged 10.2 percent after Japan’s atomic regulator found safety breaches at the company’s Kashiwazaki Kariwa station.

Australian markets ended lower to snap a three-day winning streak as investors waited to see whether the Fed will push back market expectations that an interest rate increase could come as soon as the end of next year.

The benchmark S&P/ASX 200 Index dropped 31.90 points, or 0.5 percent, to 6,795.20, while the broader All Ordinaries Index ended down 31 points, or 0.4 percent, to 7,048.

Energy stocks such as Woodside Petroleum and Santos fell about 1 percent after oil prices declined for a third day on Tuesday. Mining heavyweights BHP and Rio Tinto fell 1.6 percent and 1 percent, respectively on lower copper prices.

Gold miners Evolution Mining and Northern Star Resources lost about 3 percent, while tech stocks such as Xero and WiseTech Global rose 2-3 percent.

Corporate Travel Management shares plunged 5.6 percent after the business travel firm’s founder Jamie Pherous offloaded 1.5 million shares of the company.

Seoul stocks drifted lower as investors remained on the sidelines ahead of the Fed announcement. The benchmark Kospi slid 19.67 points, or 0.6 percent, to settle at 3,047.50 after having gained 0.7 percent on Tuesday. LG Chem led losses to end 3.8 percent lower.

Europe

European stocks have drifted lower in cautious trading on Wednesday as investors await the outcome of the Federal Reserve meeting and guidance on inflation and interest rates.

The Fed is poised to upgrade its forecasts for the U.S. economy, but it would be hard to justify no change in the policy outlook.

While the U.K.’s FTSE 100 Index has fallen by 0.5 percent, the French CAC 40 Index is down by 0.1 percent and the German DAX Index is just below the unchanged line.

Real estate investment trust SEGRO has moved to the downside despite reporting a 62 percent rise in 2020 pretax profit

On the other hand, German carmaker BMW has surged after it forecast a significant year-on-year increase in group profit in 2021.

Volkswagen and Renault have also jumped each even as new data showed Europe’s new car registrations logged another double-digit decline in February.

New car registrations declined 19.3 percent year-on-year in February, slower than the 24 percent decrease seen in January, the European Automobile Manufacturers’ Association said.

British retail investment platform Hargreaves Lansdown has also risen. The company said that its profit for the year ending June 30 should be “modestly” above analyst estimates.

Capita Plc shares have also jumped. The business process outsourcing company announced a major restructuring plan alongside efforts to raise £700 million from selling non-core assets.

U.S. Economic Reports

New residential construction in the U.S. showed a substantial decrease in the month of February, according to a report released by the Commerce Department on Wednesday, with housing starts extending the sharp pullback seen in the previous month.

The report said housing starts plummeted by 10.3 percent to an annual rate of 1.421 million in February after slumping by 5.1 percent to a revised rate of 1.584 million in January.

Economists had expected housing starts to decrease by 0.9 percent to a rate of 1.565 million from the 1.580 million originally reported for the previous month.

With the steep drop, housing starts continued to give back ground after reaching a fourteen-year high of 1.670 million in December.

The report also showed a much bigger than expected decrease in building permits, which plummeted by 10.8 percent to an annual rate of 1.682 million in February after spiking by 10.7 percent to a revised rate of 1.886 million in January.

Building permits, an indicator of future housing demand, had been expected to tumble by 7 percent to a rate of 1.750 million from the 1.881 million originally reported for the previous month.

At 10:30 am ET, the Energy Information Administration is scheduled to release its report on oil inventories in the week ended March 12th.

Crude oil inventories are expected to increase by 3.0 million barrels after jumping by 13.8 million barrels in the previous week.

The Federal Reserve is scheduled to announce its latest monetary policy decision at 2 pm ET, followed by Fed Chair Jerome Powell’s post-meeting press conference at 2:30 pm ET.

Stocks In Focus

Shares of Plug Power (PLUG) are moving sharply lower in pre-market trading after the developer of hydrogen fuel cell systems said it will restate previously issued financial statements for fiscal years 2018 and 2019 and its quarterly filings for 2019 and 2020 due to errors in accounting.

NRG Energy (NRG) is also seeing significant pre-market weakness after the energy company said Winter Storm Uri is expected to have a more significant impact on its 2021 results. The company withdrew its previously announced 2021 financial guidance.

On the other hand, shares of Lands’ End (LE) are likely to move to the upside after the apparel retailer reported better fourth quarter results that beat analyst estimates and provided upbeat guidance.

Security software company CrowdStrike (CRWD) may also see initial strength after reporting better than expected fourth quarter results and forecasting first quarter results above analyst estimates.