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U.S. equity futures slumped lower in early Tuesday trading, while Treasury yields continued to weaken following yesterday’s bond market selloff, as investors pared bets on Federal Reserve rate hikes while bracing for a busy slate of corporate earnings on Wall Street.
Stocks ended mixed on Monday, with a modest decline for the S&P 500, a larger pullback for the Dow Jones Industrial Average and a gain for the tech-focused Nasdaq as bond markets returned to their recent volatility.
Benchmark 10-year Treasury notes yields, which move in the opposite direction of prices, rose 11 basis points on the session, while adding another in overnight trading, and were last marked at a three month high of 4.208% heading into the New York session.
Merrill Lynch’s MOVE index, which tracks fixed income volatility and is known as the ‘VIX for bonds’, is trading at the highest levels of the year and is up nearly 48.6% from its early July lows.
Messaging from Federal Reserve officials that suggested a slower pace of rate cuts, election uncertainty and the prospect of higher deficits regardless of who wins the White House and renewed inflation concerns tied to the outperforming economy have all combined to drive yields higher.
The moves are sapping risk sentiment in markets around the world, and driving the dollar index to multi-month highs against a basket of its global peers.
That’s being played out in this mornings premarket session, where futures contracts tied to the S&P 500 suggest a 28 point pullback, with the Dow called 200 points lower and the Nasdaq poised of a 130 point decline.
Related: S&P 500 blows past bond market warnings
A heavy slate of earnings is expected throughout the session, with 3M (MMM) , GE Aerospace (GE) , Lockheed Martin (LMT) and Verizon (VZ) reporting before the opening bell and Texas Instruments (TXN) updating after the close.
In Europe, the Stoxx 600 was marked 0.38% lower in early Frankfurt trading, although software group SAP hit a fresh all-time high following stronger-than-expected third quarter earnings. Britain’s FTSE 100 fell 0.64% in London.
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Overnight in Asia, Japan’s Nikkei 225 fell 1.39% as investors took risk off the table ahead of this weekend’s national elections and the yen weakened to 151, a three month low, against the U.S. dollar.
The regional MSCI ex-Japan benchmark, meanwhile, was marked 0.77% lower into the close of trading.
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