It’s not a good look right now in sovereign bond markets and that is making things look less pretty in global equity markets. Yields are rising and stock prices are falling.
Notably, the 10-yr gilt yield is up 17 basis points to 4.08%; the 10-yr German bund yield is up 8 basis points to 2.49%; and the Bank of Japan carried out emergency JGB purchases for the second straight day in adherence to its yield curve control policy.
The focal point at home though is the 10-yr Treasury note yield. It has been on the unruly side of things this morning, climbing to 4.32% a short time ago before dropping abruptly to 4.28%. The frenetic way in which it has moved will undoubtedly pique concerns about liquidity issues.
Remarkably, the 1-yr T-bill yield is up 43 basis points this week to 4.72%, which is creating all sorts of competition for stocks. The 10-yr note yield is up 27 basis points; meanwhile, the 2-yr note yield is up a milder eight basis points to 4.58%.
The U.S. Dollar Index is up 0.9% to 113.86, leaving it up 0.5% for the week.
Market participants are trading the prospect of a higher terminal fed funds rate than previously thought, which relates in part to a concern that inflation is going to persist at a higher level than previously thought. The former view is undercutting the front of the yield curve while the latter view is undercutting the back end of the yield curve.
The major equity indices are still higher for the week thanks to the short squeeze at the start of the week, yet they have felt a retracement squeeze the past few sessions as the Treasury market has not been in a cooperative mood.
That retracement will continue at today’s open.
Currently, the S&P 500 futures are down 31 points and are trading 0.9% below fair value, the Nasdaq 100 futures are down 139 points and are trading 1.3% below fair value, and the Dow Jones Industrial Average futures are down 222 points and are trading 0.8% below fair value.
The projected weakness at today’s open isn’t just about rising market rates. It is also a reflection of concerns about growth, which were exacerbated last night after Snap (SNAP) said it is seeing advertising partners across many industries cut their marketing budgets.
Snap has its own issues. That is clear in the 29.7% decline in the stock in pre-market action, but with advertising being integral to its own growth outlook, it hasn’t been lost on market participants that other companies are likely also feeling the pinch of an advertising slowdown. Accordingly, stocks like Meta Platforms (META), Alphabet (GOOG), and Pinterest (PINS) are trading down in the wake of Snap’s commentary.
This understanding has been another knock on investor sentiment and it has created some reservations as we move toward the thick of the third quarter earnings reporting period next week, which will feature results from Apple (AAPL), Microsoft (MSFT), Amazon.com (AMZN), Alphabet, and Meta Platforms.
What they say will be really important as a stock market mover, almost as important as how the Treasury market behaves.
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Originally Posted October 21, 2022 – Rising rates and plummeting SNAP undercut equity futures market
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