Retreating Treasury Yields May Lead To Strength On Wall Street

Stocks are likely to move to the upside in early trading on Friday after ending yesterday’s lackluster session mostly lower. The major index futures are currently pointing to a higher open for the markets, with the S&P 500 futures up by 0.8 percent.

Early buying interest may be generated in reaction to a continued decrease by treasury yields, as the yield on the benchmark ten-year note is moving lower for the fourth straight day after reaching its highest closing level in over a year on Monday.

The recent retreat by treasury yields comes as the U.S. inflation data released over the past few days has led to renewed optimism about the outlook for interest rates.

Adding to the interest rate optimism, Federal Reserve Governor Christopher Waller told CNBC the central bank could lower interest rates multiple times this year if inflation eases as he is expecting.

“As long as the data comes in good on inflation or continues on that path, then I can certainly see rate cuts happening sooner than maybe the markets are pricing in,” Waller said during an interview with Sara Eisen on CNBC’s “Squawk on the Street” on Thursday.

Waller said the number of rate cuts would be driven by the data, suggesting the Fed could cut rates three or four times if there is a lot of progress on inflation or cut rates twice or only once if inflation remains sticky.

The upward momentum on Wall Street may also reflect optimism about the outlook for the markets under President-elect Donald Trump, who is due to be sworn in for the second time on Monday.

Stocks surged in reaction to Trump’s election in November amid expectations of more pro-business policies in the new administration, although there are also concerns about impact of proposed tariffs.

On the U.S. economic front, a report released by the Commerce Department showed new residential construction in the U.S. skyrocketed by much more than anticipated in the month of December.

Shortly before the start of trading, the Federal Reserve is scheduled to release its report on industrial production in the month of December. Industrial production is expected to rise by 0.3 percent in December after edging down by 0.1 percent in November.

Following the substantial rally seen during Wednesday’s session, stocks turned in a relatively lackluster performance during trading on Thursday. The major averages fluctuated over the course of the trading day before eventually closing in negative territory.

The tech-heavy Nasdaq ended the day more firmly in the red amid a slump by shares of Apple (AAPL), sliding 172.94 points or 0.9 percent to 19,338.29.

The Dow and the S&P 500 posted more modest losses. The Dow dipped 68.42 points or 0.2 percent to 43,153.13 and the S&P 500 slipped 12.57 points or 0.2 percent to 5,937.34.

In overseas trading, stock markets across the Asia-Pacific region turned in another mixed performance during trading on Friday. Japan’s Nikkei 225 Index fell by 0.3 percent, while China’s Shanghai Composite Index crept up by 0.2 percent.

Meanwhile, the major European markets have all shown strong moves to the upside on the day. While the U.K.’s FTSE 100 Index is up by 1.4 percent, the French CAC 40 Index and the German DAX Index are both up by 1.1 percent.

In commodities trading, crude oil futures are falling $0.42 to $78.26 a barrel after slumping $1.36 to $78.68 a barrel on Thursday. Meanwhile, after surging $33.10 to $2,750.90 an ounce in the previous session, gold futures are sliding $13.80 to $2,737.10 an ounce.

On the currency front, the U.S. dollar is trading at 155.59 yen versus the 155.16 yen it fetched at the close of New York trading on Thursday. Against the euro, the dollar is valued at $1.0294 compared to yesterday’s $1.0301.

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