Bond Yield, Dollar Rebound May Lead To Pullback On Wall Street

The major U.S. index futures are currently pointing to a sharply lower open on Thursday, with stocks likely to move back to the downside following the rally seen in the previous session.

Traders may look to cash in on yesterday’s gains, as the buying interest generated by the Bank of England’s bond market intervention quickly fades.

The moves by the BoE contributed to a pullback by bond yields and the U.S. dollar, inspiring traders to pick up stocks at reduced levels following recently weakness.

However, bond yields and the dollar have reversed course this morning, with the yield on the benchmark ten-year note jumping by 10.5 basis points and the U.S. dollar index climbing by 0.5 percent.

A report from the Labor Department showing first-time claims for U.S. unemployment benefits unexpectedly fell to a five-month low last week may also weigh on the markets.

While the report points to continued strength in the labor market, traders may view the data as giving the Federal Reserve confidence that it can continue to aggressively raise interest rates.

After moving sharply lower over the past several sessions, stocks showed a substantial rebound during trading on Wednesday. The major averages all showed strong moves back to the upside, with the Dow and the S&P 500 bouncing off their lowest closing levels since late 2020.

The major averages pulled back off their highs of the session going into the close but held on to significant gains. The Dow surged 548.75 points or 1.9 percent to 29,683.74, the Nasdaq skyrocketed 222.13 points or 2.1 percent to 11,051.64 and the S&P 500 spiked 71.75 points or 2.0 percent to 3,719.04.

The rally on Wall Street reflected a positive reaction to the Bank of England’s plans to begin temporarily purchasing long-dated U.K. government bonds to address dysfunction in the gilt market.

The BoE said the purchases would be carried out on “whatever scale is necessary” to restore orderly market conditions.

In addition, the BoE postponed the selling of bonds held under the quantitative easing program to October 31. The sale was initially due to commence next week.

The moves come as U.K. bond yields have spiked after the government revealed its mini-budget including significant unfunded tax cuts.

Long-term U.K. bond yields have pulled back following the news, while U.S. treasury yields also moved sharply lower after surging in recent sessions.

The yield on the benchmark ten-year note showed a steep drop after briefly topping 4.0 percent for the first time in over twelve years.

Stocks also benefited from a significant pullback by the U.S. dollar, with the U.S. dollar index tumbling by 1.2 percent. The greenback had recently reached new 20-year highs.

Gold stocks showed a substantial move to the upside on the day, resulting in a 7.0 percent spike by the NYSE Arca Gold Bugs Index. The rally by gold stocks came amid a sharp increase by the price of the precious metal.

A significant increase by the price of crude oil also contributed to considerable strength among energy stocks, with the Philadelphia Oil Service Index and the NYSE Arca Oil Index soaring by 5.5 percent and 5.2 percent.

Housing stocks also turned in a strong performance on the day, driving the Philadelphia Housing Sector Index up by 4.3 percent.

The index bounced off a three-month closing low even though the National Association of Realtors released a report showing pending home sales fell by more than expected in the month of August.

Biotechnology, retail and networking stocks also showed notable moves to the upside, reflecting broad based strength on Wall Street.

Commodity, Currency Markets

Crude oil futures are edging down $0.05 to $82.10 a barrel after spiking $3.65 to $82.15 a barrel on Wednesday. Meanwhile, after surging $33.80 to $1,670 an ounce in the previous session, gold futures are falling $12.90 to $1,657.10 an ounce.

On the currency front, the U.S. dollar is trading at 144.71 yen versus the 144.16 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is valued at $0.9692 compared to yesterday’s $0.9735.

Asia

Asian stocks followed Wall Street higher on Thursday after the Bank of England stepped in to buy U.K. debt, helping ease volatility in the currency and bond markets.

Chinese shares gave up early gains to end on a flat note ahead of a seven-day holiday called Golden Week from October 1-7. The benchmark Shanghai Composite Index finished 0.1 percent lower at 3,041.20, giving up early gains.

Hong Kong’s Hang Seng Index ended down 0.5 percent at 17,165.87 after having hit its lowest since October 2011 earlier in the day.

The yuan rebounded from a 14-year low against the dollar after the People’s Bank of China warned against speculative trading and heavy one-way bets on the currency.

Japanese shares advanced, led by gains in the mining, pharmaceutical and land transportation sectors. The Nikkei 225 Index jumped 1.0 percent to 26,422.05, while the broader Topix ended 0.7 percent higher at 1,868.80.

Uniqlo clothing shop owner Fast Retailing surged 2.2 percent and technology investor SoftBank Group gained 1.9 percent. Eisai soared 13.6 percent to extend gains after the surprise trial success of an experimental Alzheimer’s drug.

Seoul stocks ended off their day’s highs as some of the euphoria over the BoE’s intervention started to fade. The Kospi added 1.6 points to close at 2,170.93 after having hit a high of 2,210.61. LG Energy Solutions and Hyundai Motor both rose over 1 percent.

Australian markets rallied as higher oil prices boosted energy stocks. Gold miners, financials and tech stocks also posted significant gains. The benchmark S&P ASX 200 Index gained 1.4 percent to settle at 6,555.00, while the broader All Ordinaries Index added 1.5 percent to close at 6,760.60.

Woodside Energy jumped 3.1 percent and Santos advanced 2.3 percent. Iress plunged 17.3 percent after the software provider downgraded its fiscal 2022 profit guidance.

Europe

European stocks have tumbled on Thursday, as the boost from the Bank of England’s intervention in bond markets began to fade and Sweden’s coast guard discovered a fourth gas leak on the damaged Nord Stream pipelines, heightening energy security concerns.

The British pound resumed its slide, snapping a two-day gain, as Prime Minister Liz Truss doubled down on her tax cutting and borrowing plans.

In economic news, a measure of economic sentiment in the euro area deteriorated again in September, the European Commission said.

The corresponding index – an aggregate measure of business and consumer confidence – dropped to 93.7 from 97.3 in August, hitting the lowest reading since November 2020 amid high inflation and a darkening economic outlook.

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

H&M, the world’s No.2 fashion retailer, has moved lower after posting dismal third quarter earnings, hit by soaring input costs, slowing consumer spending and its exit from Russia.

Next Plc has also plunged in London as the apparel retailer issued its second profit warning this year, citing tough trading in August and cost-of-living pressures.

German automotive part supplier HELLA has also slumped after it posted a decline in earnings before interest and taxes for the first quarter, on higher costs especially for materials, energy and logistics, and high capital expenditures.

On the other hand, Rational AG has soared over 15 percent after raising its sales revenue and profit forecast for 2022.

Avon Protection, a maker of protection and defense products, has also jumped. The company has received its first $42.1 million delivery order from the U.S. Army under the Next Generation Integrated Head Protection System or NG IHPS helmet contract.

U.S. Economic Reports

First-time claims for U.S. unemployment benefits unexpectedly fell to a five-month low in the week ended September 24th, according to a report released by the Labor Department on Thursday.

The report showed initial jobless claims slipped to 193,000, a decrease of 16,000 from the previous week’s revised level of 209,000.

The dip surprised economists, who had expected jobless claims to inch up to 215,000 from the 213,000 originally reported for the previous week.

With the unexpected decline, jobless claims dropped to their lowest level since hitting 181,000 in the week ended April 23rd.

Meanwhile, the Commerce Department released its third estimate of U.S. economy activity in the second quarter, showing the decrease in gross domestic product was unrevised from the previous estimate.

The report said real GDP fell by 0.6 percent in the second quarter, unchanged from the drop reported last month and in line with economist estimates.

The dip in GDP in the second quarter follows a 1.6 percent slump in the first quarter, with the two consecutive decreases signaling the U.S. economy is in a technical recession.

At 1 pm ET, Cleveland Federal Reserve President Loretta Mester is due to participate in a policy panel before a hybrid Inflation: Drivers and Dynamics Conference 2022 co-hosted by the Cleveland Fed’s Center for Inflation Research.

San Francisco Federal Reserve President Mary Daly is scheduled to give a policy presentation at Boise State University at 4:45 pm ET.

Stocks In Focus

Shares of CarMax (KMX) are moving sharply lower in pre-market trading after the auto retailer reported fiscal second quarter results that missed analyst estimates on both the top and bottom lines.

Drug store operator Ride Aid (RAD) is also seeing significant pre-market weakness after reporting better than expected fiscal second quarter results but lowering its full-year earnings guidance.

Shares of Bed Bath & Beyond (BBBY) are also likely to be in focus after the housewares retailer reported a wider than expected fiscal second quarter loss on a steep drop in revenues. The results came from before the company unveiled an aggressive turnaround plan.

Meanwhile, shares of Vail Resorts (MTN) are likely to see initial strength after the resort operator reported a narrower than expected fiscal fourth quarter loss on revenues that exceeded analyst estimates.