Opening Bell: Yield Rally Continues Ahead Of U.S. Inflation Data, Futures Waver

 | Apr 12, 2022 08:56AM ET

  • Expected interest rate hike drives yields higher
  • Bitcoin remains under pressure
  • Oil recovers
    • h2 Key Events/h2

    US futures on the Dow Jones, S&P 500, NASDAQ 100 and Russell 2000 wavered on Tuesday while European markets traded lower as yields on the 10-year Treasury note pushed higher, hovering near 2.8% at time of publication. Markets are keenly awaiting the US CPI release due before the New York session opens today as any jump will likely confirm that the US Federal Reserve will raise rates 0.5% once again, in an effort to chase inflation lower and reduce recession risks.

    Both gold and the dollar continued to accelerate.

    h2 Global Financial Affairs/h2

    US contracts traded in the red earlier Tuesday but then recovered to move slightly into positive territory, though just barely for the Dow. This is a bit of a reversal vis-à-vis recent market activity when inflation worries weighed on growth stocks with high valuations. The current reversal is even more striking if the sell-off is attributed to the spike in Treasury yields. Therefore, we think this anomaly is a short-term correction within the trend.

    In Europe, the STOXX 600 slipped 1.2% at the open and the U.K.'s FTSE 100 shed 0.8% of value but both recovered slightly, although each remains in negative territory.

    Most of Asia finished the session in the red. The MSCI's broadest index of Asia Pacific excluding Japan retreated, taking its cue from the decline yesterday on Wall Street. Japan's Nikkei 225 slid 1.8%. China's Shanghai Composite was the outlier, climbing 1.46% on speculation of government policy easing on the technology sector after China ends sector there surged. Hong Kong's Hang Seng was the only other primary regional index in the green, gaining 0.52%.

    On Tuesday, the NASDAQ 100 dropped 2.35%, underperforming its peers and extending Friday's decline to 5.86%. The Russell 2000 led the four major indices, falling just 0.78%, about one-third of the drop seen in tech stocks.

    All S&P 500 sectors were in the red. Industrials lost 0.32%, Financials slipped 0.45%, and Materials declined 0.5%. Energy slumped 3% due to the ongoing coronavirus lockdown in China, which is the world's largest oil importer, as well as the decision by major economies, including the US and U.K., to tap into emergency reserves which will increase supply. Otherwise, Technology would have been the underperformer, slipping 2.52%.

    Yields on the 10-year Treasury note surged. Investors have been selling off bonds after the US Federal Reserve signaled sharper rate increases as well as balance-sheet reductions last week in an effort to slow the pace of rising inflation.