Worries About Treasury Yields May Continue To Weigh On Wall Street

The major U.S. index futures are currently pointing to a lower open on Friday, with stocks likely to extend the downward move seen over the two previous sessions.

Concerns about higher treasury yields may continue to weigh on Wall Street after the yield on the benchmark ten-year note climbed above 5 percent for the first time since July 2007.

The ten-year yield has given back ground in early trading but remains elevated at 4.98 percent amid ongoing concerns about the outlook for interest rates.

Overall trading activity may be somewhat subdued, however, with a lack of major U.S. economic data likely to keep some traders on the sidelines.

A report on personal income and spending in the month of September is likely to be in focus next week, as it includes readings on inflation said to be preferred by the Federal Reserve.

With Fed Chair Jerome Powell saying inflation is “still too high” during remarks on Thursday, traders will be looking for a slowdown in the pace of price growth.

The earnings season also continues to pick up steam next week, with a slew of big-name companies due to report their quarterly results.

After ending Wednesday’s session sharply lower, stocks saw significant volatility over the course of the trading day on Thursday. The major averages swung back and forth across the unchanged line before ending the day firmly in the red.

The major averages fell to new lows going into the close of trading. The Dow fell 250.91 points or 0.8 percent to 33,414.17, the Nasdaq slumped 128.13 points or 1.0 percent to 13,186.18 and the S&P 500 slid 36.60 points or 0.9 percent to 4,278.00.

The volatility on Wall Street came as Federal Reserve Chair Jerome Powell delivered highly anticipated remarks at an Economic Club of New York luncheon.

Powell argued in prepared remarks that inflation is “still too high” and warned additional monetary policy tightening may be needed.

Powell noted that shorter-term measures of core inflation over the most recent three and six months are now running below 3 percent but cautioned these shorter-term measures are often volatile.

“In any case, inflation is still too high, and a few months of good data are only the beginning of what it will take to build confidence that inflation is moving down sustainably toward our goal,” Powell said. “We cannot yet know how long these lower readings will persist, or where inflation will settle over coming quarters.”

He added, “While the path is likely to be bumpy and take some time, my colleagues and I are united in our commitment to bringing inflation down sustainably to 2 percent.”

Powell described the current stance of monetary policy as “restrictive” and reiterated Fed officials are willing to keeping policy restrictive until they are confident inflation is on a downward path.

Citing recent data showing the resilience of economic growth and demand for labor, Powell also warned additional monetary policy tightening could be needed.

“Additional evidence of persistently above-trend growth, or that tightness in the labor market is no longer easing, could put further progress on inflation at risk and could warrant further tightening of monetary policy,” he said.

Powell also addressed tightening financial conditions amid a recent increase in longer-term bond yields and said the Fed remains attentive to these developments, because persistent changes in financial conditions can have implications for the path of monetary policy.

Treasury yields moved higher following Powell’s remarks, extending the upward trend seen over the past few sessions and once again reaching sixteen-year highs.

The increase in yields also came as the Labor Department released a report showing initial jobless claims unexpectedly declined to a nearly nine-month low in the week ended October 14th.

The report said initial jobless claims fell to 198,000, a decrease of 13,000 from the previous week’s revised level of 211,000.

Economists had expected jobless claims to inch up to 212,000 from the 209,000 originally reported for the previous week.

With the unexpected dip, jobless claims dropped to their lowest level since hitting 194,000 in the week ended January 21st.

Interest rate-sensitive commercial real estate stocks saw substantial weakness on the day, dragging the Dow Jones U.S. Real Estate Index down by 2.4 percent.

Considerable weakness also emerged among computer hardware stocks, as reflected by the 2.0 percent slump by the NYSE Arca Computer Hardware Index.

Pharmaceutical stocks also showed a significant move to the downside, with the NYSE Arca Pharmaceutical Index falling by 1.7 percent.

Networking, telecom and housing stocks also came under pressure over the course of the session, moving lower along with most of the other major sectors.

Commodity, Currency Markets

Crude oil futures are advancing $0.93 to $90.30 a barrel after jumping $1.05 to $89.37 a barrel on Thursday. Meanwhile, after climbing $12.20 to $1,980.50 an ounce in the previous session, gold futures are inching up $4.50 to $1,985 an ounce.

On the currency front, the U.S. dollar is trading at 149.93 yen versus the 149.80 yen it fetched at the close of New York trading on Thursday. Against the euro, the dollar is valued at $1.0582 compared to yesterday’s $1.0582.

Asia

Asian stocks tumbled on Friday as escalating Middle East tensions and a continued surge in oil prices clouded the outlook for global economic growth.

Gold scaled a three-month peak on safe-haven bids amid fears the Israel-Hamas war may escalate into something of a broader regional crisis.

Israeli Defense Minister Yoav Gallant told troops gathered at the Gaza border on Thursday that they would soon see the Palestinian enclave “from inside.”

The bond market sell-off pushed the benchmark U.S. Treasury yield to 5 percent after Federal Reserve Chair Jerome Powell reiterated his commitment to getting inflation down to the central bank’s 2 percent target, giving little clarity on how long investors have to wait for rate cuts.

Oil prices were on track for a second straight weekly gain after the U.S. Department of Energy indicated that it would buy 6 million barrels of crude oil.

Chinese shares ended lower after the People’s Bank of China kept its benchmark lending rates unchanged at the monthly fixing, as widely expected.

China’s Shanghai Composite Index fell 0.7 percent to 2,983.06, while Hong Kong’s Hang Seng Index settled 0.7 percent lower at 17,172.13.

Japanese shares fell on risk aversion after reports emerged that U.S. troops are being targeted at several military bases across Iraq and Syria and a U.S. Navy warship destroyed cruise missiles and drones fired toward Israel by Houthi rebels in Yemen.

Traders largely shrugged off data showing that Japanese core inflation slid below 3 percent for the first time in more than a year.

The Nikkei 225 Index dropped 0.5 percent to 31,259.36, while the broader Topix Index closed down 0.4 percent at 2,255.65.

Heavyweights Fast Retailing and SoftBank Group fell 1.5 percent and 2 percent, respectively. Daiichi Sankyo soared 14.4 percent after signing a $5.5 billion deal with Merck to jointly develop three precision cancer drug candidates.

Seoul stocks hit a seven-month low, with the Kospi ending down 1.7 percent at 2.375 – marking the lowest level since March 14 on Fed rate hike woes. Tech and battery stocks led losses.

Australian stocks fell ahead of key inflation data due next week. The benchmark S&P/ASX 200 Index and the broader All Ordinaries Index both slumped around 1.2 percent to close at 6,900.70 and 7,089.70, respectively.

Banks and miners led losses, while energy stocks saw modest gains as oil prices climbed on fears of potential supply disruptions from the Middle East.

Liontown Resources plummeted almost 32 percent after announcing a discounted share placement.

Europe

European stocks have come under pressure on Friday, extending recent losses as expectations of higher-for-longer interest rates and an escalating Middle East conflict dent investors’ appetite for risk.

The United States said it is seeing an uptick in attacks on its military bases in Iraq and Syria, while European Commission president Ursula von der Leyen said the risk of regional spill over from the Israel-Hamas war is “real.”

The Israeli defense minister has ordered ground troops to prepare to see Gaza “from the inside,” although he didn’t indicate when the ground assault would begin.

The U.S. 10-year Treasury yield briefly reached 5 percent for the first time since 2007 in the wake of Fed Chair Jerome Powell’s cautious comments on interest rates and President Joe Biden’s announcement that he would ask Congress for funding to aid Israel.

In economic news, German producer prices declined at a record pace for the second straight month in September, mainly due to the base effect caused by the very high price level of the previous year, preliminary data from Destatis showed.

The producer price index fell 14.7 percent year-over-year in September, faster than the 12.6 percent decline in the prior month. Further, the latest rate of fall was the biggest since data collection began in 1949.

Elsewhere, official data showed U.K. retail sales logged a bigger-than-expected decline in September. Retail sales dropped 0.9 percent on a monthly basis, in contrast to the 0.4 percent increase in August, as the cost-of-living pressures damped spending and consumer sentiment.

Separately, survey results from GfK showed that rising energy costs, high mortgage and rental rates, and geopolitical risks had dampened consumer sentiment in October.

The consumer confidence index unexpectedly fell to -30 from -21 in September. The score was forecast to improve to -20.

While the U.K.’s FTSE 100 Index has slumped by 1.1 percent, the French CAC 40 Index is down by 1.3 percent and the German DAX Index is down by 1.4 percent.

Swedish garden equipment maker Husqvarna has plunged after posting disappointing third-quarter revenue and announcing another 300 job cuts.

Banking major UBS Group AG has also slumped after appointing Roger von Mentlen as the chairman of board of directors of UBS Switzerland AG and Credit Suisse (Schweiz) AG.

InterContinental Hotels has also tumbled in London after the company said “some short-term financing challenges” are holding back new hotel developments.

Beauty company L’Oreal has also moved to the downside after its third-quarter sales came in below estimates.

On the other hand, Swiss chemicals company Sika has moved notably higher after confirming its full-year outlook.

French media conglomerate Vivendi has also rallied after its third-quarter revenues grew 2.5 percent to 2.43 billion euros from last year’s 2.37 billion euros.

U.S. Economic Reports

Philadelphia Federal Reserve President Patrick Harker is scheduled to speak on the economic outlook before the Risk Management Association Philadelphia Chapter Meeting at 9 am ET.

At 12:15 pm ET, Cleveland Federal Reserve President Loretta Mester is due to speak to the SOMC Fall Meeting at the Manhattan Institute for Policy Research.

Stocks In Focus

Shares of SolarEdge (SEDG) are plummeting in pre-market trading after the solar company slashed its third quarter guidance due to substantial unexpected cancellations and pushouts of existing backlog from its European distributors.

Surgical robotics company Intuitive Surgical (ISRG) may also come under pressure after reporting third quarter earnings that exceeded analyst estimates but weaker than expected revenues.

Meanwhile, shares of Knight-Swift (KNX) are seeing substantial pre-market strength after the transportation company reported third quarter results that beat expectations on both the top and bottom lines.