Pullback By Treasury Yields May Contribute To Rebound On Wall Street

The major U.S. index futures are currently pointing to a higher open on Friday, with stocks likely to regain ground after coming under pressure in the latter half of the previous session.

A pullback by treasury yields may contribute to initial strength on Wall Street, as a jump in yields contributed to Thursday’s pullback.

Yields surged in afternoon trading on Thursday following a disappointing thirty-year bond auction and remarks by Federal Reserve Chair Jerome Powell that renewed concerns about the outlook for interest rates.

Powell said the Fed is not yet confident rates are at a sufficiently restrictive level to bring inflation down to 2 percent and warned the central bank would not hesitate to resume raising rates.

Despite Powell’s comments, CME Group’s FedWatch Tool currently still suggests the Fed is likely to leave interest rates over the next several months before cutting rates in mid-2024.

Shortly after the start of trading, the University of Michigan is due to release its preliminary reading on consumer sentiment in the month of November. The consumer sentiment index is expected to edge down to 63.7 in November after falling to 63.8 in October.

The report includes readings on consumers’ inflation expectations that could impact the outlook for interest rates.

Stocks showed a lack of direction for much of morning trading on Thursday but came under considerable pressure in the afternoon. The major averages all showed notable moves to the downside, with the Nasdaq and the S&P 500 snapping their longest winning streaks in two years.

The major averages climbed off their worst levels going into the close but remained firmly negative. The Nasdaq slumped 128.97 points or 0.9 percent to 13,521.45, the S&P 500 slid 35.43 points or 0.8 percent to 4,347.35 and the Dow fell 220.33 points or 0.7 percent to 33,891.94.

Stocks showed a notable drop in early afternoon trading after the Treasury Department revealed this month’s auction of $24 billion worth of thirty-year bonds attracted below average demand, triggering a surge in treasury yields.

The thirty-year bond auction drew a high yield of 4.769 percent and a bid-to-cover ratio of 2.24, while the ten previous thirty-year bond auctions had an average bid-to-cover ratio of 2.38.

The bid-to-cover ratio is a measure of demand that indicates the amount of bids for each dollar worth of securities being sold.

The markets saw further downside as Federal Reserve Chair Jerome Powell addressed the outlook for U.S. monetary policy, saying the central bank “will not hesitate” to resume raising interest rates if it becomes appropriate.

Participating in a policy panel at the 24th Jacques Polak Annual Research Conference in Washington, D.C., Powell acknowledged that U.S. inflation has slowed over the past year but pointed out it remains well above the Fed’s 2 percent target.

“My colleagues and I are gratified by this progress but expect that the process of getting inflation sustainably down to 2 percent has a long way to go,” Powell said.

Powell also said the Fed is “not confident” a stance of monetary policy that is sufficiently restrictive to bring inflation down to 2 percent over time has been achieved.

“We know that ongoing progress toward our 2 percent goal is not assured: Inflation has given us a few head fakes,” Powell said. “If it becomes appropriate to tighten policy further, we will not hesitate to do so.”

He added, “We will continue to move carefully, however, allowing us to address both the risk of being misled by a few good months of data, and the risk of overtightening.”

Powell indicated the Fed will make future monetary policy decisions “meeting by meeting” based on the totality of incoming data and the implications for the outlook for economic activity and inflation.

Airline stocks moved sharply lower over the course of the session, resulting in a 2.5 percent nosedive by the NYSE Arca Airline Index.

Substantial weakness was also visible among pharmaceutical stocks, as reflected by the 2.5 percent slump by the NYSE Pharmaceutical Index.

Biotechnology stocks also saw considerable weakness on the day, dragging the NYSE Arca Biotechnology Index down by 2.4 percent.

Healthcare, commercial real estate and banking stocks also moved notably lower, while some strength remained visible among networking stocks.

Shares of Infinera (INFN) soared by 14.6 percent after the telecom equipment company raised its third quarter guidance.

Commodity, Currency Markets

Crude oil futures are advancing $0.81 to $76.55 a barrel after rising $0.41 to $75.74 a barrel on Thursday. Meanwhile, after climbing $12 to $1,969.80 an ounce in the previous session, gold futures are sliding $20 to $1,949.80 an ounce.

On the currency front, the U.S. dollar is trading at 151.43 yen versus the 151.35 yen it fetched at the close of New York trading on Thursday. Against the euro, the dollar is valued at $1.0679 compared to yesterday’s $1.0668.

Asia

Asian stocks declined on Friday as a jump in U.S. bond yields following a disappointing Treasury auction coupled with Fed Chair Jerome Powell’s cautious comments on the rate hike path dashed expectations of a peak in U.S. interest rates.

Echoing recent hawkish statements from several officials, Powell said on Thursday that the Fed isn’t yet confident they had reached a sufficiently restrictive level of monetary policy to bring inflation down to the 2 percent target.

Powell’s comments pushed the dollar higher and dented demand for emerging market assets. Gold edged down on the dollar’s strength, while oil prices rose but were set for another weekly loss on demand concerns and easing Middle East tensions.

China’s Shanghai Composite Index dropped 0.5 percent to 3,038.97 on increased worries of faltering demand a day after data showed consumer price inflation in the country slipped back into contraction.

Hong Kong’s Hang Seng Index tumbled 1.8 percent to 17,203.26 after the Industrial and Commercial Bank of China, the world’s biggest lender, was hit by a cyberattack.

Japanese shares closed lower after tech investor Softbank posted an unexpected ¥931 billion ($6.2 billion) net loss in its second quarter, hit by falling valuations in portfolio companies.

Softbank shares plunged 8.2 percent, while the Nikkei 225 Index dipped 0.2 percent to 32,568.11. The broader Topix Index finished marginally higher at 2,336.72.

Seoul stocks ended notably lower, with the Kospi falling 0.7 percent to 2,409.66. Posco Holdings, SK Innovation and SK Bioscience plummeted 3-5 percent.

Australian markets declined on worries about increasing inflation and potential rate hikes. The benchmark S&P ASX 200 Index fell 0.6 percent to 6,976.50 after the Reserve Bank said in its quarterly statement of monetary policy that it expects inflation to return to the top of its 2-3 percent target only by end-2025. The broader All Ordinaries Index settled 0.5 percent lower at 7,176.60.

Across the Tasman, New Zealand’s benchmark S&P NZX-50 Index slid 0.5 percent to 11,140.40 after the release of disappointing manufacturing data.

Europe

European stocks have fallen on Friday, as hawkish comments from Fed, ECB and BoE officials dented hopes that interest rate hikes are finished.

Investors were also reacting to data showing that the U.K. economy failed to grow between July to September but avoided the start of a recession. GDP was flat in the third quarter for the first time this year, avoiding an expected decline, official data showed.

While the U.K.’s FTSE 100 Index has slumped by 1.3 percent, the French CAC 40 Index is down by 1.0 percent and the German DAX Index is down by 0.7 percent.

Swiss luxury group Richemont has shown a significant move to the downside after reporting weaker-than-expected fiscal first-half earnings.

Lower metal prices are also weighing on metal stocks, with Anglo American and Antofagasta both moving notably lower.

Drinks group Diageo has also plummeted after warning that growth in operating profits will slow in the first half.

Homebuilder Redrow has also tumbled after saying it expects annual profit and revenue to be at the lower end of its forecast range.

SCOR SE, a tier 1 reinsurance company, has also plunged in Paris after quarterly gross written premium declined to 4.87 billion euros from 5.14 billion euros last year.

On the other hand, GN Store Nord has moved sharply lower after posting better-than-expected third-quarter results.

Danish pharmaceutical giant Novo Nordisk has also moved to the upside after it announced plans to invest $6 billion to boost output.

U.S. Economic Reports

Atlanta Federal Reserve President Raphael Bostic is scheduled to speak on “Economic Mobility and Challenges in the Community” before the Mobile Chamber of Commerce at 9 am ET.

At 10 am ET, the University of Michigan is due to release its preliminary reading on consumer sentiment in the month of November. The consumer sentiment index is expected to edge down to 63.7 in November after falling to 63.8 in October.

Stocks In Focus

Shares of Plug Power (PLUG) are plummeting in pre-market trading after the hydrogen fuel cell developer reported disappointing third quarter results and said there are doubts about its ability to continue as a “going concern.”

Digital marketing company The Trade Desk (TTD) is also likely to move sharply lower after reporting better than expected third quarter sales but providing disappointing guidance for the current quarter.

Shares of Unity Software (U) may also come under pressure after the video game engine maker reported third quarter revenues that missed analyst estimates and refrained from issuing guidance.