U.S. Stock Futures Edge Higher as Treasury Yields Dip


U.S. stock futures are showing a slight uptick early on Thursday. This comes as Treasury yields have dipped and stress in Asian markets has eased.

A Brief Look at Yesterday’s Market Performance

Yesterday, the Dow Jones Industrial Average (DJIA) experienced a decline of 94 points, or 0.25%, landing at 37,267. Similarly, the S&P 500 (SPX) saw a decrease of 27 points, or 0.56%, reaching 4,739. The Nasdaq Composite (COMP) also faced a setback, dropping 89 points, or 0.59%, to 14,856.

Influence of Bonds on Equities

U.S. equities continue to be heavily influenced by bonds. However, there is some positive news for equity bulls today—the Treasury yields are starting to trend downwards. This development has provided some stability to index futures.

The Volatile Start for the S&P 500

The S&P 500 has experienced a volatile start to the year. It has pulled back from nearly reaching record highs as investors adjust their expectations for interest rate cuts in the upcoming months. This adjustment has increased implied borrowing costs.

Changing Treasuries Yields

The 10-year Treasury yield (BX:TMUBMUSD10Y) jumped more than 30 basis points from its low of 3.8% on December 27. This surge followed central bank officials’ pushback against rate-cut expectations. Additionally, the latest increase was a response to stronger-than-anticipated U.S. retail sales data.

The Relationship Between Bonds and Equities

Jim Reid, a strategist at Deutsche Bank, commented on the current connection between bonds and equities. He stated that the tight correlation between the two asset classes, which began bearishly in August during the quarterly refunding announcement and flipped bullish in October, has now turned bearish again in 2024. However, Reid believes that this correlation will eventually break, as history has shown.

The Revised Rate Cut Expectations

Traders are currently pricing in a 63% chance of at least a 25-basis-point rate cut by the Federal Reserve at its March meeting. This percentage has decreased from 73.3% just a week ago.

The Federal Reserve’s Stance and Market Expectations

Market expectations for rate cuts have recently diverged from the rhetoric coming from the Federal Reserve. However, this discrepancy is gradually shifting toward the Fed’s stance, according to Stephen Innes, managing partner at SPI Asset Management.

Asian Trading Boosts U.S. Futures

Asian trading has played a pivotal role in stabilizing U.S. futures on Thursday. Hong Kong’s Hang Seng index experienced a significant drop of 3.7% on Wednesday, reaching its lowest point since October 2022 due to concerns about China’s economy. However, the index managed to rally by 0.75% during the new session. Similarly, China’s Shanghai Composite also regained some stability with a 0.4% gain.

Positive Results from Taiwan Semiconductor Manufacturing Company

Taiwan Semiconductor Manufacturing Company (TSM) has exceeded analysts’ forecasts with its latest results. This outcome could offer substantial support to the tech-heavy Nasdaq Composite index in the United States.

Ongoing Earnings Season

The current earnings season continues to bring mixed results. Several U.S. companies, including Fastenal (FAST), First Horizon (FHN), and KeyCorp (KEY), are set to report their earnings before the opening bell on Wall Street on Thursday. The day will come to a close with earnings reports from PPG Industries (PPG), J.B. Hunt Transport Services (JBHT), and First National Bank (FNB).

U.S. Economic Updates

Various economic updates are scheduled for release on Thursday in the United States. These include the weekly initial jobless claims, the January Philadelphia Fed manufacturing survey, and housing starts and building permits for December. All of these reports will be made available at 8:30 a.m. Eastern.

Comments from Fed Officials

Several Federal Reserve officials will be making comments regarding the economic outlook on Thursday. Atlanta Fed President Raphael Bostic is scheduled to speak twice, once at 7:30 a.m. and again at 11:30 a.m.

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