Rising Treasury Yields May Weigh On Wall Street

The major U.S. index futures are currently pointing to initial weakness on Wall Street on Wednesday, with stocks likely to move mostly lower following the mixed performance seen in the previous session.

A continued increase by treasury yields may weigh on Wall Street, as the yield on the benchmark ten-year note is seeing further upside after jumping above 4.5 percent to its highest levels in nearly a month on Tuesday.

The advance by treasury yields is likely to add to recent concerns about the outlook for interest rates ahead of key inflation data later in the week.

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

The inflation data could have a significant impact on the outlook for interest rates ahead of the Fed’s next monetary policy meeting on June 11-12.

In an interview with CNBC on Tuesday, Minneapolis Fed President Neel Kashkari said he needs to see “many more months of positive inflation data” before he would consider cutting interest rates.

Kashkari, who does not have a vote on the rate-setting Federal Open Market Committee this year, also said he could not rule out raising interest rates if inflation fails to slow.

After moving in opposite directions early in the session, the Nasdaq and the Dow turned in a mixed performance throughout much of the trading day on Tuesday.

While the Nasdaq briefly joined the Dow in negative territory in afternoon trading, the tech-heavy index rebounded to end the day at a new record closing high.

The Nasdaq climbed 99.09 points or 0.6 percent to 17,019.88, adding to the strong gain posted last Friday. The S&P 500 also inched up 1.32 points or less than a tenth of a percent to 5,306.04, while the Dow slid 216.73 points or 0.6 percent to 38,852.86, extending the sharp pullback seen last week.

The continued advance by the Nasdaq came amid a sharp increase by shares of Nvidia (NVDA), with the AI darling surging by 7.1 percent to a record closing high.

Last week, Nvidia reported better than expected fiscal first quarter results and provided upbeat guidance while also announcing a ten-for-one stock split and increasing its quarterly cash dividend by 150 percent to $0.10 per share.

The Nasdaq gave back ground in afternoon trading, as the ten-year treasury yield jumped above 4.5 percent after auctions of two-year and five-year notes attracted below average demand.

Meanwhile, a steep drop by shares of Merck (MRK) weighed on the Dow, as the drug giant tumbled by 2.6 percent to its lowest closing level in well over a month.

Overall trading activity remained somewhat subdued, however, as traders looked ahead to the release of key inflation data later this week.

On the U.S. economic front, the Conference Board released a report unexpectedly showing a significant improvement in consumer confidence in the month of May.

The Conference Board said its consumer confidence index jumped to 102.0 in May from an upwardly revised 97.5 in April.

The rebound surprised economists, who had expected the consumer confidence index to decrease to 95.3 from the 97.0 originally reported for the previous month.

Airline stocks moved sharply lower over the course of the session, dragging the NYSE Arca Airline Index down by 2.0 percent to its lowest closing level in over four months.

Considerable weakness also emerged among housing stocks, as reflected by the 1.3 percent loss posted by the Philadelphia Housing Sector Index.

Healthcare and pharmaceutical stocks also saw notable weakness, while gold stocks showed a strong move to the upside along with the price of the precious metal, driving the NYSE Arca Gold Bugs Index up by 2.2 percent.

Oil service stocks also moved significantly higher amid a surge by the price of crude oil, resulting in a 1.7 percent gain by the Philadelphia Oil Service Index.

Semiconductor and computer hardware stocks also turned in strong performances on the day, contributing to the advance by the tech-heavy Nasdaq.

Commodity, Currency Markets

Crude oil futures are climbing $0.54 to $80.37 a barrel after surging $2.11 to $79.83 a barrel on Tuesday. Meanwhile, an ounce of gold is trading at $2,364.30, down $15 compared to the previous session’s close of $2,379.30. On Tuesday, gold jumped $22.40.

On the currency front, the U.S. dollar is trading at 157.16 yen compared to the 157.17 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is trading at $1.0849 compared to yesterday’s $1.0857.

Asia

Asian stocks ended mostly lower on Wednesday as the dollar and U.S. bond yields ticked higher following hawkish Fed comments and disappointing two-year and five-year note auctions.

Geopolitical tensions also weighed on the markets after the pro-Iranian Yemeni Houthi group attacked a Greek ship in the Red Sea.

Chinese stocks fluctuated before ending on a firm note. The benchmark Shanghai Composite index finished marginally higher at 3,111.02 after the country’s biggest cities eased requirements for home down payments and mortgages and the International Monetary Fund raised its forecast for China’s economic outlook.

Hong Kong’s Hang Seng Index tumbled 1.8 percent to 18,477.01 after a recent rally that has pushed the benchmark gauge up by more than a fifth since late January.

Lenovo shares declined 1.7 percent after the personal computer maker unveiled plans to sell $2 billion worth of zero-coupon convertible bonds to Saudi Arabia’s sovereign wealth fund.

Japanese shares lost ground as rising government bond yields weighed on growth stocks. The Nikkei 225 Index dropped 0.8 percent to 38,556.87, while the broader Topix Index settled 1.0 percent lower at 2,741.62.

Tokyo Electric Power Holdings led losses to close 8.3 percent lower and Mitsubishi Electric gave up 4.6 percent, while insurer Sompo Holdings rallied 4.2 percent.

Seoul stocks fell sharply, with the Kospi closing down 1.7 percent at 2,677.30. LG Chem slumped 5.2 percent and SK Innovation shed 2.8 percent.

Australian markets closed lower after data showed consumer price inflation unexpectedly picked up to a five-month high in April, raising concerns the Reserve Bank might need to raise rates.

The benchmark S&P ASX 200 Index fell 1.3 percent to 7,665.60, while the broader All Ordinaries Index ended down 1.2 percent at 7,935.70.

Across the Tasman, New Zealand’s benchmark S&P NZX-50 Index closed marginally lower at 11,678.68.

Europe

European stocks have moved mostly lower on Wednesday as higher bond yields and a surge in oil prices due to heightened tensions in the Middle East stoked concerns that interest rates will likely stay higher for longer.

In economic news, consumer confidence in Germany is set to improve further in June on rising economic and income expectations amid slowing inflation and rising wages, results of a survey showed.

The consumer confidence index rose to -20.9 in June from a revised -24.0 in the previous month, the survey published jointly by GfK and the Nuremberg Institute for Market Decisions showed. Overall consumer climate improved for the fourth time in a row.

French consumer confidence held steady in May and remained well below its long-term average, monthly survey data from the statistical office INSEE showed.

The consumer sentiment index stood at 90.0 in May, the same as in April. Meanwhile, economists had expected the score to rise to 91.

While the French CAC 40 Index has tumbled by 1.3 percent, the German DAX Index is down by 1.0 percent and the U.K.’s FTSE 100 Index is down by 0.4 percent.

BP Plc and Shell have moved to the upside as oil extended overnight gains on expectations that major producers will maintain output cuts at a meeting this Sunday.

BHP Group shares has also risen after reports that the mining giant has urged rival Anglo American to extend the looming deadline for a final offer on a proposed £39 billion merger.

Royal Mail’s parent company International Distributions Services has jumped after it accepted a takeover proposal from Czech billionaire Daniel Kretinsky’s conglomerate EP Group.

U.S. Economic Reports

The Treasury Department is scheduled to announce the results of this month’s auction of $44 billion worth of seven-year notes at 1 pm ET.

At 1:45 pm ET, New York Federal Reserve President John Williams is due to participate in a roundtable with local leaders to hear about business conditions and municipal and community services.

The Federal Reserve is scheduled to release its Beige Book, a compilation of anecdotal evidence on economic conditions in each of the twelve Fed districts, at 2 pm ET.

At 7 pm ET, Atlanta Federal Reserve President Raphael Bostic is due to participate in a moderated conversation on the “Economic Outlook and Leadership” before the American Economic Association Conference on Teaching and Research in Economic Education.

Stocks In Focus

Shares of Marathon Oil (MRO) are moving sharply higher in pre-market trading after the energy company agreed to be acquired by ConocoPhillips (COP) in an all-stock transaction value at $22.5 billion, including $5.4 billion in debt.

Sporting goods retailer Dick’s Sporting Goods (DKS) is also seeing significant pre-market strength after reporting better than expected fiscal first quarter results and raising its full-year guidance.

On the other hand, shares of America Airlines (AAL) are likely to come under pressure after the airline lowered its second quarter earnings guidance.

Restaurant chain Cava (CAVA) is also seeing pre-market despite reporting fiscal first quarter results that exceeded analyst estimates on both the top and bottom lines.