Opening Bell: Futures, Global Stocks Slip On Treasury Selloff; Oil Soars

Soaring US yields drive global markets, pushing stocks lower

Oil on track for highest close in four years

Key Events

Yesterday's accelerated selloff in Treasurys extended this morning, pushing yields on the US 10-year note to a 7-year high after fresh data confirmed sustained economic growth in the US, shortly after Fed Chairman Jerome Powell signaled that the central bank will stick with its rate tightening agenda. The higher yields weighed on global stocks today, including futures on the S&P 500, Dow and NASDAQ 100, which all hovering in negative territory.

The pan-European STOXX 600 opened lower and soon extended the decline to past 0.5 percent, with personal and household goods stocks as well as food and beverage shares the biggest decliners. Conversely, banks outperformed, spurred by the very same hawkish comments from Powell. Technically, the benchmark is set to complete a small H&S top, at the crest of a falling channel.

Earlier, during the Asian session, regional currencies slipped lower against a strengthening dollar. With China's mainland indices closed for a week-long holiday, a slide in the yuan, considered a leading indicator of Asian equities, was enough to reveal a bearish tilt across the region. Technically, the renminbi fell below an uptrend line.

Hong Kong’s Hang Seng took the brunt of the regional selloff, losing 1.73 percent. Australia’s S&P/ASX 200 outperformed, closing 0.49 percent in the green.

Global Financial Affairs

Yesterday, upbeat private payrolls and services industries figures, coming after Powell' hawkish statements, boosted the outlook for faster rate hikes and thereby sparked considerable volatility, as institutional investors and other large players rushed to restructure investment portfolios accordingly.

The Treasury selloff that ensued, propelling yields to their highest level since 2011, boosted the greenback but spurred a selloff for defensive equity sectors, as bond proxies typically tend to fall out of favor when actual bond yields rise.

The S&P 500 eked out a 0.07 percent gain after its intraday high came within 0.04 percent of its record high. Utilities (-1.2 percent) underperformed, followed closely by Real Estate (1.15 percent) and Consumer Staples (-1.07 percent). Shares in the financials sector (+0.94 percent) outperformed, followed by those in the Energy space (+0.81 percent), as crude climbed past $76 a barrel, trading near its highest level in nearly four years.

The Dow Jones Industrial Average ticked 0.2 percent higher, hitting both a record close and an all-time high, helped by Caterpillar (NYSE:CAT)'s 2.2 percent leap to its highest level since June 12.

The NASDAQ Composite edged 0.32 percent higher, boosted by Apple’s (NASDAQ:AAPL) 1.22 percent gain to a new all-time high.

The Russell 2000 outperformed, gaining 0.89 percent. Technically, however, the small cap equity benchmark faces the resistance of the bottom of the rising channel that it violated.

Yesterday's ADP private payroll report, which revealed 230,000 new jobs against the 185,000 expected, marked the highest reading since February. Traders hold this release as an indication of official nonfarm payroll figures, coming out on Friday, which carry a deeper significance.

The ISM Non-manufacturing index climbed to 61.6 from 58.8. While a reading above 50 demonstrates expansion, this number nears a record high. Moreover, the measure of business activity increased to 65.2 from 60.7, the highest level since January 2004, while the employment component jumped to 62.4 from 56.7, also hitting a record.

The dollar surged on Wednesday as domestic and foreign investors rotated their capital into US assets, though it has retreated slightly today. It still remains above its uptrend line since May 14, which it crossed yesterday, but it has fallen below the uptrend line on September 12 for the second time since August 28: it must now overcome the August 15, 97.00 level to retain the uptrend.

Meanwhile, oil rebounded after sliding on reports that Saudi Arabia and Russia agreed to increase production. At $76.38, as of the time of writing, the commodity is set to close at its highest level since mid-November 2014. Right now it appears that oil markets are being driven by two factors, fear and speculation based on that fear. And neither is based in reality.

Up Ahead

• American factory orders for August are due on Thursday; data on the trade balance will come out on Friday.

• The September US jobs report is also due on Friday.

• The Reserve Bank of India’s monetary policy decision is due on Friday.

Market Moves

All prices correct at time of writing

Stocks

• Futures on the S&P 500 dropped 0.4 percent to the lowest level in more than a week on the most substantial dip in more than two weeks.

• The STOXX Europe 600 gave up 0.1 percent.

• The UK’s FTSE 100 fell 0.3 percent.

• Germany’s DAX slipped 0.4 percent.

• The MSCI Asia Pacific Index lost 1.1 percent, the lowest level in three weeks on the most massive tumble in more than four weeks.

• The MSCI Emerging Market Index tumbled 1.9 percent, the lowest level in more than three weeks on the biggest tumble in more than six months.

Currencies

• The euro gained less than 0.05 percent to $1.1479, the first advance in more than a week.

• The British pound rose less than 0.05 percent to $1.2945.

• The Japanese yen climbed 0.1 percent to 114.36 per dollar.

Bonds

• The yield on 10-year Treasuries gained two basis points to 3.20 percent, the highest level in more than seven years.

• Germany’s 10-year yield edged six basis points higher to 0.53 percent, the highest level in more than a week on the biggest surge in almost four months.

• Britain's 10-year yield gained five basis points to 1.623 percent, the highest level in more than a week on the most substantial climb in more than a week.