1. U.S. 10-Year Treasury Yield Hits Fresh 7-Year High
U.S. Treasurys came under renewed selling pressure, pushing the yield on the benchmark 10-year note to a fresh seven-year high. The yield on the 10-year Treasury note was last up 2.9 basis points at 3.256%, after hitting its highest level since late April 2011 at 3.261%, while the 30-year Treasury yield brushed a four-year peak of 3.44%.
Bond yields move inversely to prices. Treasury yields have surged recently following a batch of upbeat economic data that bolstered the case for the Federal Reserve to raise rates in December and beyond.
2. Wall Street Points to Shaky Open
U.S. stock index futures pointed to a lower open, amid growing concerns that rising Treasury yields are making equities less attractive for investors. At 5:40AM ET, the blue-chip Dow futures were down 110 points, or 0.4%, the S&P 500 futures shed 11 points, or around 0.4%, while the tech-heavy Nasdaq 100 futures indicated a decline of 28 points, or roughly 0.4%. Wall Street ended mostly lower on Monday, as investors continued to fret over a sharp rise in bond yields.
Rising bond yields can crimp demand for assets perceived as riskier, such as stocks, particularly when those yields are higher than those of equities. Elsewhere, in Europe, the region’s major bourses nudged lower in mid-morning action, with most sectors in negative territory, as the stand-off between Rome and Brussels over Italy’s spending plans remained in focus.
3. Dollar Edges Higher as Euro Suffers
Away from equities, the dollar edged higher against its major rivals, underpinned as the move higher in U.S. Treasury yields continued. The U.S. dollar index, which measures the greenback’s strength against a basket of six major currencies, was up about 0.3% to 95.70, not far from a seven-week top of 95.78 reached last week.
The euro fell 0.3% to hit a seven-week low of 1.1450 (EUR/USD), as concerns about a row in the European Union over Italy’s budget persisted.
4. Fed Speakers Eyed for Rate Hikes Hints
Markets will pay close attention to comments from a few Fed speakers today for their views on inflation trends as traders watch for clues on the pace of future rate hikes through the end of this year and beyond. Dallas Fed President Robert Kaplan is due to speak at the Economic Club of New York at 8:00AM ET (1200GMT).
Chicago Fed President Charles Evans will then deliver opening remarks at the Opportunity Financial Network Conference at 9AM ET (1300GMT).
In the evening, New York Fed President John Williams will give a speech at the New York Fed-Bank Indonesia Central Banking Forum in Bali. On the data front, the calendar is quite thin with only the September NFIB Survey out at 6AM ET (1000GMT).
The Fed raised interest rates late last month, its third rate hike this year, and is expected to follow that up with another increase before the end of December, taking the benchmark fed funds rate to 2.25-2.50%.
5. IMF Cuts Global Growth Forecasts
In an update to its World Economic Outlook, the International Monetary Fund (IMF) said it was now predicting 3.7% global growth in both 2018 and 2019, down from its July forecast of 3.9% growth for both years. The downgrade reflects a confluence of factors, including the introduction of import tariffs between the United States and China, uncertainties surrounding the new NAFTA agreement and Brexit, as well as rising interest rates that are pressuring some emerging markets with capital outflows, notably Argentina, Brazil, Turkey and South Africa.
With much of the U.S.-China tariff war‘s impact to be felt next year, the IMF cut its 2019 U.S. growth forecast to 2.5% from 2.7% previously, while it cut China’s 2019 growth forecast to 6.2% from 6.4%.