Rebounding Treasury Yields May Lead To Continued Weakness On Wall Street

The major U.S. index futures are currently pointing to a lower open on Monday, with stocks likely to add to the steep losses posted last week.

The downward momentum on Wall Street comes as treasury yields have rebounded amid ongoing concerns about the outlook for interest rates.

Following the pullback seen last Friday, the yield on the benchmark ten-year note has moved back to the upside, briefly peeking above the key 5 percent level.

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.

On Friday, the Commerce Department is due to release its report on personal income and spending, which includes readings on inflation said to be preferred by the Federal Reserve.

Traders are also likely to keep an eye on reports on new home sales, durable goods orders, pending home sales and initial jobless claims in the coming days.

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

Stocks moved sharply lower over the course of the trading day on Friday, extending the downward move seen over the two previous sessions. With the extended decline, the Nasdaq and the S&P 500 fell to their lowest closing levels in well over four months.

The major averages saw further downside going into the close, ending the session near their worst levels of the day. The Nasdaq plunged 202.37 points or 1.5 percent to 12,983.81, the S&P 500 tumbled 53.84 points or 1.3 percent to 4,224.16 and the Dow slid 286.89 points or 0.9 percent to 33,127.28.

For the week, the Nasdaq plummeted by 3.2 percent, the S&P 500 dove by 2.4 percent and the Dow tumbled by 1.6 percent.

The continued weakness on Wall Street came amid ongoing concerns about the recent surge in treasury yields to sixteen-year highs.

Overnight, the yield on the benchmark ten-year note climbed above 5 percent for the first time since July 2007 but has given back ground since then.

The recent advance by yields reflects continued worries about the outlook for interest rates, with the Federal Reserve signaling rates will remain higher for longer than previously anticipated.

During a speech on Thursday, Fed Chair Jerome Powell described inflation as “still too high” and warned additional monetary policy tightening may be needed.

Powell also reiterated Fed officials are willing to keeping policy restrictive until they are confident inflation is on a downward path.

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 Fed.

Fears the Israel-Hamas war may escalate into a broader regional crisis also contributed to the negative sentiment on Wall Street.

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

Additionally, reports emerged that U.S. troops are being targeted at several military bases across Iraq and Syria, while a U.S. Navy warship destroyed cruise missiles and drones fired toward Israel by Houthi rebels in Yemen.

Banking stocks showed a substantial move to the downside on the day, dragging the KBW Bank Index down by 3.1 percent to a five-month closing low.

Significant weakness was also visible among oil service stocks, as reflected by the 2.3 percent slump by the Philadelphia Oil Service Index.

A steep drop by Schlumberger (SLB) is weighing on the sector after the company reported third quarter earnings that beat analyst estimates but weaker than expected revenues.

Computer hardware stocks also saw considerable weakness, with the NYSE Arca Computer Hardware Index tumbling by 2.1 percent to its lowest closing level in almost four months.

Software, steel and semiconductor stocks also showed notable moves to the downside, moving lower along with most of the other major sectors.

Commodity, Currency Markets

Crude oil futures are falling $0.39 to $87.69 a barrel after slipping $0.29 to $88.75 a barrel last Friday. Meanwhile, after climbing $13.90 to $1,994.40 an ounce in the previous session, gold futures are edging down $2.70 to $1,991.70 an ounce.

On the currency front, the U.S. dollar is trading at 149.91 yen versus the 149.86 yen it fetched at the close of New York trading on Friday. Against the euro, the dollar is trading at $1.0610 compared to last Friday’s $1.0594.

Asia

Asian stocks closed with heavy losses on Monday, as the Middle East conflict and the recent surge in bond yields weighed on the markets. Reports of searches by Chinese tax authorities on Taiwan-based Foxconn Technology Co. as well as anxiety ahead of the major tech earnings also weighed on sentiment. Markets in Hong Kong and New Zealand were closed for a holiday.

China’s Shanghai Composite Index shed 1.5 percent to finish trading near a one-year low of 2,939.29. The day’s trading ranged between 2,973.66 and 2,923.51. The Shenzhen Component Index lost 144.38 points or 1.5 percent to close at 9,425.98, touching a four-month low.

The Japanese benchmark Nikkei 225 Index slid 259.81 points or 0.8 percent to end trading at 30,999.55. The day’s trading range was between 31,177.41 and 30,974.26.

Shiseido was the top gainer with a surge of 3.3 percent. Daiichi Sankyo and Astellas Pharma both gained more than 2 percent whereas Nissui Corp. and NH Foods both added more than 1 percent.

Pacific Metals was the biggest laggard with a decline of more than 4 percent. Nippon Sheet Glass, Oki Electric Industry, Eneos Holdings and Mitsui Engineering & Shipbuilding all declined more than 3 percent.

The Korean Stock Exchange’s Kospi Index declined 17.98 points or 0.8 percent to close trading at 2,357.02. The day’s trading range was between 2,354.70 and 2,375.79.

Australia’s S&P/ASX 200 Index closed trading at 6,844.10, shedding 56.60 points or 0.8 percent. The index finished at a new 100-day low. The day’s trading range was between 6,831.30 and 6,900.70.

Semiconductor business Weebit Nano surged 15 percent. Auto business ARB Corporation gained more than 5 percent. Healthcare business Resmed, real estate business Growthpoint Properties Australia and healthcare business Polynovo all added more than 3 percent.

Energy business New Hope Corporation plunged 8.5 percent. Mining businesses also recorded steep declines. Pilbara Minerals tumbled 7.3 percent followed by Liontown Resources, Mineral Resources and Igo, all of which slumped more than 5 percent.

Europe

European stocks have moved to the downside on Monday, as lingering concerns about the outlook for economic growth, interest rates, and the geopolitical situation continue to hurt investor sentiment, prompting them to lighten commitments.

Investors are also looking ahead to the European Central Bank’s monetary policy announcement this week. ECB policymakers are likely to hold interest rates unchanged when they gather in Athens on Thursday.

While the French CAC 40 Index is just below the unchanged line, the U.K.’s FTSE 100 Index is down by 0.5 percent and the German DAX Index is down by 0.7 percent.

In the UK market, Just Eat Takeaway.com, Fresnillo, TUI, Rentokil Initial, Anglo American Plc, Segro, Glencore and Antofagasta are down 2.5 to 4.7 percent.

BT, BP, Pennon, Persimmon, Centrica, AstraZeneca, Natwest and National Grid are also among the prominent losers.

Flutter Entertainment, Royal Mail and IAG are gaining 1 to 1.5 percent.

In the German market, Merck is declining 4.6 percent and Sartorius is down 4.3 percent Siemens Energy, Vonovia, Volkswagen, Zalando, Infineon, Porsche, Fresenius Medical Care, Symrise, Adidas and Mercedes-Benz are lower by 1.4 to 3.2 percent

Heidelbergement is rising 1.8 percent Covestro is gaining nearly 1 percent

In Paris, WorldLine is down nearly 7 percent. Teleperformance is declining by about 3.1 percent and Renault is down 2 percent Veolia, Engie, Alstom, Unibail Rodamco, STMicroElectronics, LVMH and Kering are also notably lower.

Thales and L’Oreal are up 1.3 percent and 1.2 percent respectively. Eurofins Scientific, Bouygues, Safran and Stellantis are posting modest gains.

U.S. Economic Reports

No major U.S. economic data is scheduled to be released today.

Stocks In Focus

Shares of Chevron (CVX) are moving lower in pre-market trading after the energy giant announced an agreement to acquire smaller rival Hess (HES) in an all-stock transaction valued at $53 billion.

Aluminum producer Alcoa (AA) may also move to the downside after Bank of American downgraded its rating on the company’s stock to Neutral from Buy and slashed its price target to $25 from $35.

Meanwhile, shares of Textainer Group (THG) are seeing substantial pre-market strength after container leasing company agreed to be acquired by alternative investment firm Stonepeak for $50 per share in cash.

Drug store operator Walgreens Boots Alliance (WBA) may also see initial strength after JPMorgan upgraded its rating on the company’s stock to Overweight from Neutral.