U.S. stock index futures indicate a downturn for Wednesday's opening, suggesting a reversal following a near-flat finish the day prior, as equities managed to recover from early losses. This downward trend can be attributed to a continued rise in Treasury yields, which have surged over recent sessions.
The yield on the ten-year Treasury has reached its highest point in nearly three months, fueled by concerns that the Federal Reserve may reduce interest rates at a slower pace than previously anticipated. Following a 50 basis point rate cut by the Fed last month, the CME Group's FedWatch Tool now suggests a 91% probability of only a 25 basis point cut in the upcoming month.
Dow futures are under pressure, particularly from a sharp pre-market drop of 6.8% in McDonald's (MCD) shares, after the CDC linked a severe E. coli outbreak in Mountain West states to the chain's Quarter Pounders. Similarly, Starbucks (SBUX) faces significant pre-market declines after reporting a decrease in fourth-quarter sales and halting its fiscal 2025 guidance. Conversely, AT&T (T) shares are expected to rise, following its report of third-quarter earnings that surpassed expectations.
Despite a rocky start, markets on Tuesday regained footing, with major indices recovering from their lows and ending the day largely unchanged. The Nasdaq managed a gain of 33.12 points (0.2%) to reach 18,573.13, while the Dow dipped slightly by 6.71 points (less than 0.1%) to 42,924.89, and the S&P 500 edged down by 2.78 points (0.1%) to 5,851.20.
The initial downturn on Wall Street was partly driven by renewed concerns over interest rate trajectories, following a marked increase in U.S. Treasury yields. These yields have risen amid concerns about the U.S. fiscal deficit and Federal Reserve comments suggesting gradual rate cuts.
Market sentiments improved, even as the yield on the benchmark ten-year note closed near its three-month high, with traders remaining optimistic about the economic outlook. Notably, a significant drop in Verizon (VZ) contributed to the Dow's slight decline, with its shares falling 5.0% due to disappointing revenue figures despite better-than-expected earnings. Meanwhile, 3M (MMM) also experienced declines despite outperforming earnings forecasts.
On a positive note, General Motors (GM) shares surged by 9.8% after reporting robust third-quarter results. In the housing sector, stocks tumbled amid interest rate concerns, causing a 3.1% decline in the Philadelphia Housing Sector Index, which retreated from its record close last Friday. Computer hardware stocks suffered as well, with the NYSE Arca Computer Hardware Index dropping 2.3%, led by an 8.5% plunge in Logitech (LOGI) shares, despite strong quarterly results. Meanwhile, telecom and airline stocks experienced notable declines, whereas tobacco and gold stocks moved higher.
**Commodities and Currency Markets**
Crude oil futures decreased by $1.20, moving to $70.54 per barrel, following a $1.70 increase to $71.74 the previous day. Gold is slightly down at $2,757.90 per ounce, diminishing by $1.90 from the prior session's close; it had risen by $20.90 on Tuesday. In currency markets, the U.S. dollar is trading at 153.09 yen compared to Tuesday's 151.08 yen, and $1.0768 against the euro, down from $1.0799.
**Asia**
Asian markets concluded the trading session mixed on Wednesday. The U.S. dollar index surpassed 104, influenced by rising U.S. Treasury yields and diminishing expectations of aggressive Federal Reserve rate cuts, alongside concerns over potential U.S. fiscal challenges. While gold prices reached record highs, oil prices dipped following reports of larger-than-expected U.S. crude inventory increases. Chinese stocks saw slight gains, buoyed by rumors of a potential government move to allocate up to 2 trillion yuan (approximately $280 billion) to create a stock market stabilization fund.The Shanghai Composite Index climbed by 0.5% to reach a level of 3,302.80, while the Hang Seng Index in Hong Kong experienced a notable increase of 1.2%, closing at 20,760.15.
In contrast, Japanese markets saw declines. This hesitance among investors is largely attributed to the anticipation surrounding the country's upcoming lower house election. Moreover, investor sentiment was further adversely affected by rising U.S. Treasury yields, stemming from evolving expectations about the Federal Reserve's approach to rate cuts.
The Nikkei 225 Index decreased by 0.8%, settling at 38,104.86, following media reports indicating that the ruling Liberal Democratic Party and its coalition partner Komeito might lose their majority. The Topix Index also ended lower, down 0.6% at 2,636.96. Declines were marked by a 4.9% drop in staffing agency Recruit Holdings and a 1.7% downturn for Fast Retailing, the owner of Uniqlo. Conversely, automakers Honda Motor and Toyota saw gains between 2-3% due to a weakened yen. In an impressive debut, Tokyo Metro's shares surged 45% on their first trading day.
In Seoul, the market saw a robust performance with significant advances in automakers and technology sectors, as the Kospi leapt 1.1% to 2,599.62. Leading tech company Samsung Electronics rose by 2.4%, while SK Hynix, the second-largest chipmaker, surged by 4.4%. Hyundai Motor also performed well, appreciating by 2.8%.
Australian markets posted slight gains, primarily driven by consumer staple stocks. The S&P/ASX 200 Index inched up by 0.1% to 8,216, with the All Ordinaries Index also closing marginally higher at 8,476.30. Among the leading players, Woolworths advanced 1.6% and Coles Group added 1.4%, amidst a legal defense against discount-related allegations in the Federal Court.
In New Zealand, the S&P/NZX 50 Index recorded a minor setback, dipping 0.2% to 12,787.60.
**Europe**
European stocks largely trended lower on Wednesday, as market participants navigated mixed corporate earnings reports and prepared for the U.K.'s forthcoming autumn budget announcement.
The U.S. dollar rose, along with U.S. Treasury yields, which hovered near their three-month peak amid speculation about the implications of a potential Donald Trump presidency. Concerns loom that Trump's policies on tariffs and immigration could lead to higher inflation, possibly sustaining elevated interest rates longer than previously expected.
Key indices saw declines, with the French CAC 40 down 0.6%, the UK's FTSE 100 falling 0.5%, and Germany's DAX retreating by 0.2%.
L'Oreal shares dropped following less-than-expected third-quarter sales growth, attributed to weak consumer confidence in China. Thales and Air Liquide also saw downtrends despite reporting solid sales figures. Similarly, Ipsen's stock declined despite reporting strong sales momentum.
Deutsche Bank shares also fell despite the German bank's return to profitability in the third quarter, as credit risk concerns were highlighted. On the upside, British lender Lloyds gained after posting better-than-expected profits. Reckitt Benckiser shares rallied, reporting a smaller decline in underlying sales than anticipated. Barratt Developments and advertising giant WPP both saw increases, the latter due to a positive quarterly revenue report.
**U.S. Economic Outlook**
Federal Reserve Board Governor Michelle Bowman will deliver opening remarks at the Eighth Annual Fintech Conference at 9 a.m. ET.
The National Association of Realtors is scheduled to release its report on September's existing home sales at 10 a.m. ET, with expectations of an increase to an annual rate of 3.90 million, up from August's 3.86 million.
At 10:30 a.m. ET, the Energy Information Administration will publish its oil inventory report for the week ending October 18th, with forecasts indicating a 0.7 million barrel increase against the previous week's 2.2 million barrel decline.
Richmond Federal Reserve President Thomas Barkin will discuss "Recognizing the Impact of Community Colleges" at the 2024 Virginia Education and Workforce Conference at 12 p.m. ET.
The Treasury Department is slated to reveal the outcome of its $13 billion twenty-year bond auction at 1 p.m. ET.
Furthermore, the Federal Reserve will release its Beige Book at 2 p.m. ET, offering a summary of economic conditions across the twelve Fed districts.
