U.S. stock futures faced challenges in early Thursday trading as oil prices reached a 13-month high, contributing to increased bond yields.
Stock-Index Futures Performance
- S&P 500 futures (ES00) dipped by 3 points, or 0.1%, to 4310
- Dow Jones Industrial Average futures (YM00) fell by 43 points, or 0.1%, to 33748
- Nasdaq 100 futures (NQ00) eased by 24 points, or 0.2%, to 14715
Recap of Wednesday’s Market
On Wednesday, the Dow Jones Industrial Average (DJIA) experienced a 0.2% decline of 69 points, settling at 33550. The S&P 500 (SPX) saw a negligible increase of 1 point or 0.02%, closing at 4275. Meanwhile, the Nasdaq Composite (COMP) gained 29 points or 0.22%, ending at 13093.
Impact of Rising Bond Yields
Equity investors remained cautious due to the upward trend in bond yields. In September alone, the S&P 500 has declined by 5.2% as long-term borrowing costs have surged to their highest levels since 2007.
Early trading on Thursday showed minimal change in the 10-year Treasury yield (BX:TMUBMUSD10Y) at around 4.61%. This steadiness slightly dampened S&P 500 futures.
Energy Costs Driving Bond Yield Surge
Recent sessions have witnessed a surge in bond yields, partly due to concerns about increased government debt supply and encouraging economic data. Additionally, the rising cost of energy has contributed to this trend.
The U.S. crude benchmark for WTI (CL.1) reached $95 per barrel overnight, marking its highest price in the past 13 months. This increase is attributed to reduced production from Russia and Saudi Arabia, as well as lower U.S. inventories.
The Impact of Rising Oil Prices on the Economy
The recent surge in oil prices has introduced a new layer of complexity to the economic landscape, according to Stephen Innes, managing partner at SPI Asset Management. This development is set to have far-reaching implications, potentially altering prevailing trends in inflation and interest rates. As a result, central banks around the world are faced with the challenging task of striking a balance between promoting economic growth and managing inflation.
Federal Reserve’s Response
Traders await comments from Federal Reserve Chair Jerome Powell, who is expected to address this issue at 4 p.m. Eastern time. Preceding Powell’s remarks, Fed Governor Lisa Cook will speak at 1 p.m. These statements from key figures within the Fed will provide valuable insights into how they plan to navigate this complex landscape.
Other Economic Updates
Investors will have multiple U.S. economic updates to consider throughout the day. Among the notable releases are the weekly jobless claims report and the revised second-quarter GDP, both due at 8:30 a.m. Additionally, pending home sales for August will be announced at 10 a.m. The core Personal Consumption Expenditures (PCE) index, which is the Fed’s preferred gauge of inflation, is scheduled for release on Friday.
Cautious Market Sentiment
Weakness across Asian bourses, particularly in Hong Kong’s Hang Seng index, is contributing to a cautious tone on Thursday. The Hang Seng index fell by 1.4%, hitting a new low for the year. This decline comes as trading of China Evergrande Group, a highly indebted Chinese property developer, was suspended. Furthermore, mainland China’s markets will be closed until October 9th for the Golden Week holiday.
As market participants closely monitor the developments surrounding rising oil prices, financial institutions and investors alike must assess the potential long-term impact on interest rates, inflation, and economic growth. The coming days will shed further light on how these various factors will converge and shape the future economic landscape.