US Stocks Build Gains, Bond Yields & Oil Prices Rise, Amid Global Market Caution
Frankfurt (Sept 25) Global stocks traded cautiously higher Tuesday, helping U.S. equity futures into positive territory, as markets in Asia re-opened for the week amid concerns over the fate of U.S. China trade talks, risings oil prices and steady increases in government bond yields that have lifted U.S. 10-year borrowing costs to a 2018 high.
With no progress in sight with respect the current impasse on trade negotiation between Washington and Beijing, and Chinese officials hinting that they may not resume until after the November elections, investors were left to ponder the impact of the current round of tariffs, which kicked-in Monday, on the world's two biggest economies.
That impact may also be influenced by the recent surge in oil prices, which has lifted crude to the highest levels in four years following OPEC decision to keep its production quotas unchanged despite looming U.S. sanctions on the sale of Iranian crude, which could take an estimated million barrels of oil from the market each day, and to rebuff criticism on market influence from President Donald Trump.
Both Brent and WTI crude extended gains in overnight Asia trading following yesterday's 3%-plus surge, with Brent contracts for November delivery rising 76 cents to $81.96 per barrel, the highest since November 2014, and WTI futures for the same month gaining 42 cents to trade at $72.50 per barrel.
The region-wide MSCI Asia ex-Japan index, the broadest measure of share prices, was marked only modestly lower in the first full trading day of the week Tuesday, following national holiday in Japan, China and South Korea, although stocks in Shanghai fell 0.6% while the Hang Seng index slumped a further 1.62% to take its quarter-to-date decline past 5%. A modestly weaker yen, which slipped to 112.92 against the dollar, helped lift the Nikkei 225 into a modestly 0.29% gain by the close of trading, taking the benchmark to 23,940.26 points.
U.S. equity futures were also holding on to modest gains by 3:30 am eastern time, with contracts tied to the Dow Jones Industrial Average indicating a 90 point gain for the 30-stock average and those linked to S&P 500 suggesting an 8 point advance for the broader benchmark. Nasdaq Composite futures were seen 18 points to the upside.
Facebook Inc. (FB) shares were indicated sharply lower in pre-market trading Tuesday after the social media group confirmed the departure of the co-founders of its popular Instagram app, a move that marks the second major exodus of key developers in its fast-growing messaging businesses.
Action Alerts Plus holding Facebook shares were marked 2.9% lower in pre-market trading Tuesday, indicating an opening bell price of $160.54 each, move that would extend the stock's year-to-date decline past 9% and value the Palo Alto, Calf.-based group at just under $470 billion.
European stocks, however, were the strongest gainers across the board in early Tuesday trading following a report from Reuters that suggested Italy's coalition government is prepared to meet the European Union's budget deficit threshold of 3% of GDP, and eliminate tax breaks for domestic oil companies, as it prepares to unveil financial plans for the region's third-largest economy for next year.
The news allowed Italy's FTSE MIB, the country's benchmark stock index, to rise 1.3% by mid-day in Milan, while its benchmark 10-year borrowing costs slipped modestly to 2.871%. The Europe-wide Stoxx 600 was marked 0.43% higher in the opening hour of trading in Frankfurt, while Britain's FTSE 100 gained 0.31% on the strength of energy and healthcare stocks.
Away from equities, however, global bond markets are beginning to show real signs of inflation concerns ahead of a two-date rate setting meeting of the Federal Reserve, which kicks off later today in Washington, and following rare hawkish comments on consumer price increases yesterday from European Central Bank President Mario Draghi.
Draghi told European lawmakers Monday that he saw a "relatively vigorous" acceleration in currency area inflation going forward, thanks in part to rising wages and an improving labor market, even as he added that market expectations for rates depended on the ECB keeping its policy in place until the end of next summer.
The comments lifted the euro to a three-month high of 1.1815 against the U.S. dollar, although that gain was pared to 1.1766 this morning, but bond markets reacted more definitively: benchmark 10-year German bund yields traded at a three-month high of 0.529% this morning while similarly-date government bonds from France, known as OATs, traded at 0.85%.
U.S. Treasuries were also on the move, with benchmark 10-year bond yields rising 4 basis points to 3.11%, the highest level of the year, and 2-year notes were marked at 2.835% after a $37 billion sale of those bonds yesterday drew the highest cost since June 2008.
TheStreet
