A look at the day ahead in U.S. and global markets from Mike Dolan.
The fragile world stock market rally of the past week has been sideswiped by soaring bond yields, a pothole in the earnings season, Japan's plummeting yen and fresh chaos at the top of Britain's government.
Electric vehicle giant Tesla (NASDAQ:TSLA) threw a curve ball into an otherwise bright start to the third-quarter corporate earnings period and its stock dived almost 6% after the bell on Wednesday after it said it will miss its annual 2022 delivery target. The latest European tech sector earnings on Thursday were downbeat, too.
But soaring U.S. Treasury borrowing costs -- where 3-, 10- and 30-year yields hit 15-, 14- and 11- year highs above 4% respectively -- were an even bigger dampener.
Asian and European stocks were lower on Thursday, with U.S. stock futures in the red.
Even though some analysts clung to nods from the Federal Reserve that it might ease its rate rise campaign some time next year, the expected peak 'terminal' rate for the Fed's main policy rate has now closed in on 5%.
Unsettled bond markets appeared to ignore the Fed's Beige Book of economic conditions that indicated inflation pressures may be easing at last. And they also seem to bypass a comment from Minneapolis Fed chief Neel Kashkari that his "best guess" was inflation pressures level off soon and allow the Fed to pause rate rises "some time next year."
Yet as Treasury yields soared, the Bank of Japan on Thursday doubled down on its government bond yield cap - pushing the premium on U.S. Treasuries over JGBs ever wider and the sending the yen plummeting to 150 per dollar for the first time since 1990. Japanese policymakers' repeated threats of intervention to address excessive currency market volatility, but no action to stop the slide was seen so far.
The unfolding chaos at the top of UK government worsened, meantime. UK interior minister Suella Braverman quit late on Wednesday amid chaotic scenes within the ruling Conservative Party and mounting pressure on Prime Minister Liz Truss to stand down after less than 2 months in the job.
Even though battered British bonds have recovered some of their footing from the disastrous mini-budget last month, the pound was on the wane again. Bank of England Deputy Governor Ben Broadbent said the BoE would respond to changes in Truss's tax and spending policies. "Whether official interest rates have to rise by quite as much as currently priced in financial markets remains to be seen," he said.
Key developments that should provide more direction to U.S. markets later on Thursday:
* European Union summit in Brussels
* U.S. Oct Philadelphia business index. U.S. Sept existing home sales, U.S. weekly jobless claims
* U.S. corp earnings: American Airlines (NASDAQ:AAL), AT&T (NYSE:T), Dow, Danaher (NYSE:DHR), Whirlpool (NYSE:WHR), CSX (NASDAQ:CSX), Union Pacific (NYSE:UNP), Marsh & McLennan, Nucor (NYSE:NUE), Fifth Third Bancorp (NASDAQ:FITB), SVP Financial, Dover (NYSE:DOV), Pool (NASDAQ:POOL), Quest Diagnostics (NYSE:DGX), Freeport-McMoRan (NYSE:FCX), Tractor Supply (NASDAQ:TSCO), Genuine Parts, Robert Half (NYSE:RHI)
* U.S. Federal Reserve Board Governor Philip Jefferson, Fed Board Governor Lisa Cook, Fed Board Governor Michelle Bowman, Philadelphia Fed chief Patrick Harker all speak
* Turkey central bank policy decision
* European Central Bank President Christine Lagarde speaks in Frankfurt, Bank of Spain chief Pablo Hernández de Cos speaks in Madrid
Graphic: Yen Hits 150 per $ -https://fingfx.thomsonreuters.com/gfx/mkt/mopakmmzwpa/Two.PNG
Graphic: Fed Terminal Rate - https://fingfx.thomsonreuters.com/gfx/mkt/mypmommwkpr/One.PNG
Graphic: Tesla's automotive gross margin stagnates - https://graphics.reuters.com/TESLA-RESULTS/byvrloorove/chart.png
(By Mike Dolan, mike.dolan@thomsonreuters.com. Twitter: @reutersMikeD; Editing by Kim Coghill)