Higher Treasury Yields May Lead To Extended Pullback On Wall Street

The major U.S. index futures are currently pointing to initial weakness on Tuesday, with stocks likely to see further downside after ending the previous session mostly lower.

Renewed concerns about the outlook for interest rates may weigh on Wall Street following a recent surge by U.S. treasury yields.

The yield on the benchmark ten-year note has jumped to its highest levels in almost three months amid worries about the U.S. fiscal deficit and comments from Federal Reserve officials hinting at gradual rate cuts.

After the Fed slashed interest rates by 50 basis points last month, CME Group’s FedWatch Tool is currently indicating an 87.6 chance of just a 25 basis point rate cut next month.

A steep drop by shares of Verizon (VZ) is also likely to weigh on the Dow, with the telecom giant tumbling by 3.0 percent in pre-market trading.

The slump by Verizon comes after the company reported third quarter earnings that beat analyst estimates but weaker than expected revenues.

Meanwhile, fellow Dow component 3M (MMM) is likely to see initial strength after the industrial conglomerate reported third quarter earnings that exceeded expectations.

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.

Following recent strength on Wall Street, the major U.S. stock indexes turned in a mixed performance during trading on Monday. While the Dow showed a notable pullback, the tech-heavy Nasdaq managed to end the day in positive territory.

The Dow slid 344.31 points or 0.8 percent to 42,931.60 and the S&P 500 dipped 10.69 points or 0.2 percent to 5,853.98, but the Nasdaq rose 50.45 points or 0.3 percent to 18,540.01.

The pullback by the Dow partly reflected significant declines by American Express (AXP), Merck (MRK) and Travelers (TRV).

The blue chip index gave back ground after reaching a record closing high last Friday, as some traders cashed in on the recent strength.

Meanwhile, the Nasdaq fluctuated over the course of the session before eventually ending the day at its best closing level since setting a record closing high in July.

Overall trading activity was relatively subdued, as traders looked ahead to the release of a slew of corporate earnings news from big-name companies.

Reports on durable goods orders and new and existing home sales are also likely to attract attention in the coming days along with the Federal Reserve’s Beige Book.

The Conference Board released a report this morning showing its reading on leading U.S. economic indicators fell by more than expected in the month of September.

The report said the leading economic index slid by 0.5 percent in September after falling by a revised 0.3 percent in August.

Economists had expected the leading economic index to decrease by 0.3 percent compared to the 0.2 percent dip originally reported for the previous month.

Housing stocks saw substantial weakness on the day, with the Philadelphia Housing Sector Index plunging by 3.0 percent after ending last Friday’s trading at a record closing high.

Considerable weakness was also visible among commercial real estate stocks, as reflected by the 2.0 percent slumped by the Dow Jones U.S. Real Estate Index.

Telecom, banking and pharmaceutical stocks also saw significant weakness, while airline stocks showed a strong move to the upside.

Commodity, Currency Markets

Crude oil futures are climbing $0.59 to $71.15 a barrel after jumping $1.34 to $70.56 a barrel on Monday. Meanwhile, after rising $8.90 to $2,738.90 an ounce in the previous session, gold futures are advancing $12 to $2,750.90 an ounce.

On the currency front, the U.S. dollar is trading at 150.87 yen compared to the 150.84 yen it fetched at the close of New York trading on Monday. Against the euro, the dollar is valued at $1.0813 compared to yesterday’s $1.0815.

Asia

Asian stocks ended broadly lower on Tuesday as Middle East tensions persisted and rising bond yields made investors rethink the interest rate outlook.

The dollar index remained elevated and approached the next psychological mark of 104 yen, supported by strong U.S. treasury yields.

Gold held near record levels amid geopolitical uncertainties and ahead of the U.S. election that’s less than two weeks away. Oil prices fell about 1 percent in Asian trade on concerns about slowing demand growth in China.

Chinese and Hong Kong markets ended with modest gains after the People’s Bank of China conducted its first operation of the Securities, Funds, and Insurance Companies Swap Facility (SFISF), aiming to leverage the role of financial institutions better in stabilizing China’s capital market.

China’s Shanghai Composite Index rose 0.5 percent to 3,285.87, while Hong Kong’s Hang Seng Index edged up 0.1 percent to 20,498.95.

Japanese stocks tumbled amid concerns the ruling party may lose its lower house majority in the October 27 election. The Nikkei 225 Index slumped 1.4 percent to 38,411.96, while the broader Topix Index settled 1.1 percent lower at 2,651.47.

Tech stocks suffered heavy losses, with Advantest and Tokyo Electron falling around 3 percent each. Uniqlo-brand owner Fast Retailing lost 3.2 percent.

Seoul stocks fell sharply on the back of selling by foreign investors. The Kospi ended 1.3 percent lower at 2,570.70.

Australian markets lost ground, with banks and miners leading losses on higher U.S. Treasury yields. The benchmark S&P/ASX 200 Index dove 1.7 percent to 8,205.70, while the broader All Ordinaries index finished down 1.6 percent at 8,469.

Wise Tech Global surged 2.8 percent after settling a lawsuit involving its CEO. Coal miners also performed well, with Yancoal Australia climbing 3 percent and Stanmore Resources rallying 3.4 percent on China stimulus optimism.

Across the Tasman, New Zealand’s benchmark S&P/NZX-50 Index dropped 0.9 percent to 12,813.15.

Europe

European stocks have moved mostly lower during trading on Tuesday amid rising inflation expectations and concerns over U.S. fiscal deficit.

With about two weeks left before the November 5 election, Treasury yields remained elevated on concerns about the path of the U.S. deficit regardless of which candidate wins the race for the White House.

While the U.K.’s FTSE 100 Index is down by 0.6 percent, the French CAC 40 Index is down by 0.3 percent and the German DAX Index is down by 0.1 percent.

Data showed earlier in the day that the U.K. budget deficit widened more than estimated in September and hit the highest level for the month since 2021.

Chancellor Rachel Reeves is set to deliver the Autumn Budget 2024 on October 30. The budget is expected to hike taxes and reduce spending worth GBP 40 billion.

Chief Secretary to the Treasury Darren Jones said the budget would require difficult decisions to fix the foundations of the economy and begin delivering on the promise of change.

In corporate news, SAP has surged after the German software giant raised its full-year targets on a strong cloud business in the third quarter.

Swedish aerospace and defense company Saab AB has also soared after reporting significantly higher profit and orders in its third quarter with strong growth in demand.

Cycling and motoring specialist Halfords Group has also jumped after reporting stable first-half sales and backing its full-year guidance.

Meanwhile, Swiss Computer parts maker Logitech International has plunged in volatile trading after raising its full-year outlook.

Tele2 AB, a provider of telecommunication services, has also tumbled as it reported net sales in line with expectations in the third quarter.

Mulberry Group shares have also slumped after the British luxury fashion brand rejected a second takeover proposal from Mike Ashley’s Frasers Group, saying it was “untenable”.

Oil services engineer Hunting has also moved sharply lower after cutting its full-year earnings guidance.

U.S. Economic News

Philadelphia Federal Reserve President Patrick Harker is scheduled to speak before the Eighth Annual Fintech Conference at 10 am ET.

Stocks In Focus

Shares of GE Aerospace (GE) are moving sharply lower in pre-market trading after the defense company reported weaker than expected third quarter revenues.

Paint maker Sherwin-Williams (SHW) may also come under pressure after reporting third quarter results that missed analyst estimates.

On the other hand, shares of General Motors (GM) are likely to see initial strength after the auto giant reported better than expected third quarter results.