Another Spike In Treasury Yields May Lead To Pullback On Wall Street

The major U.S. index futures are pointing to a lower open on Thursday, with stocks likely to give back ground after ending the previous session mostly higher.

A pullback by tech stocks may weigh on the markets, with the Nasdaq futures moving sharply lower amid another spike in U.S. treasury yields.

The yield on the benchmark ten-year note has jumped above 1.7 percent to reach its highest levels since last January, while the thirty-year bond yield has surged up to its highest levels since last summer.

Yields are skyrocketing despite yesterday’s assurances by the Federal Reserve that interest rates will remain at near-zero levels through 2023.

Analysts have attributed the jump in yields to concerns that the Fed’s apparent willingness to let inflation accelerate more than normal will reduce the appeal of bonds. Yields move in the opposite direction of bond prices.

Traders are also reacting to a report from the Labor Department showing an unexpected increase in first-time claims for U.S. unemployment benefits in the week ended March 13th.

Reflecting a positive reaction to the Federal Reserve’s highly anticipated monetary policy announcement, U.S. stocks ended Wednesday’s trading mostly higher. With the upward move, the Dow and the S&P 500 reached new record closing highs.

The major averages all finished the day in positive territory, with the tech-heavy Nasdaq showing a significant rebound after moving sharply lower in early trading.

After tumbling by as much as 1.5 percent, the Nasdaq ended the day up 53.64 points or 0.4 percent to 13,525.20. The Dow also advanced 189.42 points or 0.6 percent to 33,015.37 and the S&P 500 rose 11.41 points or 0.3 percent to 3,974.12.

The higher close on Wall Street came after the Federal Reserve forecast stronger economic growth and higher inflation this year but indicated it expects to keep interest rates at near-zero levels through 2023.

The Fed provided updated forecasts along with the announcement of the its universally expected decision to maintain the target range for the federal funds rate at zero to 0.25 percent.

The central bank also reiterated it plans to continue purchasing bonds at a rate of at least $120 billion per month until “substantial further progress” has been made toward its policy goals.

The Fed said members now expect U.S. GDP to soar by 6.5 percent in 2021 compared to the 4.2 percent spike forecast last December.

The forecast for the pace of growth in core consumer prices, which exclude food and energy prices, was also upwardly revised to 2.2 percent from 1.8 percent.

In its accompanying statement, the central bank acknowledged that indicators of economic activity and employment have turned up recently.

Nonetheless, the median forecast from Fed members predicts interest rates will remain at current levels through 2023.

The latest projections from the Fed helped offset recent concerns about the outlook for rates, with treasury yields pulling back off their highs after spiking early in the session.

The Fed once again reiterated that rates will remain unchanged until labor market conditions have reached levels consistent with its assessments of maximum employment and inflation is on track to moderately exceed 2 percent for some time.

The latest forecasts show GDP growth is expected to slow to 3.3 percent in 2022 and 2.2 percent in 2023, while core consumer prices are expected to rise by 2.0 percent in 2022 and 2.1 percent in 2023.

“The updated economic projections released after the Fed’s mid-March meeting show that officials expect strong economic growth this year to have only a transitory impact on inflation, which explains why most still aren’t thinking about thinking raising interest rates,” said Michael Pearce, Senior U.S. Economist at Capital Economics.

He added, “With the Fed keen to let inflation run above its target for a while, we expect they will keep rates on hold even if higher inflation proves a little more stubborn than they currently anticipate.”

The statement from the Fed once again noted the path of the economy will depend significantly on the course of the coronavirus, including progress on vaccinations.

Housing stocks moved sharply higher over the course of the trading session, driving the Philadelphia Housing Sector Index up by 3.3 percent to a record closing high.

The rally by housing stocks came despite the release of a Commerce Department report showing a much bigger than expected decrease in housing starts in the month of February.

Substantial strength also emerged among airline stocks, as reflected by the 2.5 percent jump by the NYSE Arca Airline Index.

Gold stocks also turned in a strong performance on the day, with the NYSE Arca Gold Bugs Index climbing by 2.4 percent to its best closing level in over a month.

The strength among gold stocks came as the price of the precious metal spiked in electronic trading after ending the regular session modestly lower.

Computer hardware, semiconductor and brokerage stocks also moved notably higher, while utilities stocks moved to the downside.

Commodity, Currency Markets

Crude oil futures are sliding $0.72 to $63.88 a barrel after slipping $0.20 to $64.60 a barrel on Wednesday. Meanwhile, after falling $3.80 to $1,727.10 an ounce in the previous session, gold futures unchanged.

On the currency front, the U.S. dollar is trading at 109.10 yen versus the 108.84 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is valued at $1.1927 compared to yesterday’s $1.1979.

Asia

Asian stocks ended mixed on Thursday as Treasury yields climbed despite the Federal Reserve’s dovish monetary policy announcement.

The Fed reiterated its accommodative monetary policy and projected the U.S. economy to grow 6.5 percent this year, the fastest pace in four decades, due to the successful vaccine rollout and recent fiscal stimulus.

Chinese shares ended modestly higher as the Fed’s policy statement helped ease inflation fears. The benchmark Shanghai Composite Index rose 17.52 points, or 0.5 percent, to 3,463.07, while Hong Kong’s Hang Seng Index rallied 371.60 points, or 1.3 percent, to 29,405.72.

Japanese shares rose sharply after reports suggested the Bank of Japan will agree to allow yields to trade in a wider band when it ends a two-day policy meeting on Friday. The Nikkei 225 Index jumped 302.42 points, or 1 percent, to 30,216.75, while the broader Topix closed 1.2 percent higher at 2,008.51.

Panasonic rose over 1 percent after the firm said it will sell two European plants that produce disposable consumer batteries to German asset management group Aurelius.

Toshiba advanced 1.5 percent after a landmark vote to investigate the fairness of voting at the 2020 annual shareholders’ meeting.

Meanwhile, Z Holdings gave up 1.6 percent after reports that its group online chat firm Line let Chinese engineers access to customer data.

Australian stocks fell notably amid weakness in the tech and industrial spaces. The benchmark S&P/ASX 200 Index dropped 49.30 points, or 0.7 percent, to 6,745.90 despite strong jobs data, with the unemployment rate falling to 5.8 percent in February. The broader All Ordinaries Index ended down 44.40 points, or 0.6 percent, at 7,003.60.

Afterpay and Nearmap fell about 1.8 percent in the tech sector. Toll road operator Transurban Group lost 2.1 percent.

Gold miners Evolution, Northern Star Resources and Newcrest surged 3-4 percent as gold hits its highest level in over two weeks on a softer dollar.

Adherium shares plunged 9.5 percent after the healthcare firm sealed an $18 million raise with commitments from existing shareholders including Trudell Medical to buy shares at 1.5 cents each.

Seoul stocks advanced as rate hike worries ebbed following the Fed’s policy announcement. The benchmark Kospi rose 18.51 points, or 0.6 percent, to 3,066.01.

Auto and tech stocks were among the top gainers. Hyundai Motor rose 0.9 percent, Samsung Electronics gained 0.7 percent and SK Hynix added 1.4 percent.

Europe

European stocks are turning in a mixed performance on Thursday after Bank of England policymakers unanimously decided to keep its benchmark rate and quantitative easing unchanged

While the German DAX Index is up by 0.9 percent, the French CAC 40 Index is nearly unchanged and the U.K.’s FTSE 100 Index is down by 0.2 percent.

In stock-specific news, Vectura Group has jumped. The pharmaceutical company said it will pay a special dividend of £115 million during 2021 after receiving a big payout from GlaxoSmithKline over U.S. patent litigation.

Volkswagen has also advanced on reports that the Czech government is negotiating with the carmaker on construction of one of its electric car batteries plants in Czechia.

Patrizia AG, a partner for global real assets, has also risen. The company said assets under management were 47.0 billion euros in the fiscal year 2020, an increase of 5.7 percent year-over-year.

Life science group Sartorius has also shown a substantial move to the upside after raising its outlook for full-year 2021.

On the other hand, Ocado has fallen despite the online grocer reporting a 40 percent surge in sales in the last three months.

Public transport company National Express has also declined after it swung to a pretax loss for 2020 on lower revenue.

U.S. Economic Reports

First-time claims for U.S. unemployment benefits unexpectedly increased in the week ended March 13th, according to a report released by the Labor Department on Thursday.

The report said initial jobless claims climbed to 770,000, an increase of 45,000 from the previous week’s revised level of 725,000.

The rebound came as a surprise to economists, who had expected jobless claims to edge down to 700,000 from the 712,000 originally reported for the previous week.

Meanwhile, the Labor Department said the less volatile four-week moving average dipped to 746,250, a decrease of 16,000 from the previous week’s revised average of 762,250.

A separate report released by the Philadelphia Federal Reserve showed its reading on regional manufacturing activity spiked to a nearly 50-year high in March.

The Philly Fed said its diffusion index for current activity soared to 51.8 in March from 23.1 in February, with a positive reading indicating growth in regional manufacturing activity. Economists had expected the index to come in unchanged.

With the substantial increase, the Philly Fed Index skyrocketed to its highest level since hitting 53.6 in April of 1973.

At 10 am ET, the Conference Board is scheduled to release its report on leading economic indicators in the month of February. Economists expect the leading economic index to rise by 0.3 percent.

The Treasury Department is due to announce the details of this month’s auctions of two-year, five-year and seven-year notes at 11 am ET.

Stocks In Focus

Shares of Dollar General (DG) are seeing significant pre-market weakness after the discount retailer reported weaker than expected fourth quarter earnings and provided disappointing guidance.

Operations software company PagerDuty (PD) may also come under pressure after reporting a narrower than expected fourth quarter loss but forecasting a wider than expected full-year loss.

On the other hand, shares of Williams-Sonoma (WSM) are moving sharply higher in pre-market trading after the housewares retailer reported better than expected fourth quarter results, raised its dividend and announced a new $1 billion stock buyback.

Outdoor sports and recreation retailer American Outdoor Brands (AOUT) is also likely to see initial strength after reporting fiscal third quarter results that exceeded estimates and providing upbeat guidance.