Investing.com — Bond yields are on the rise again and putting pressure on tech stocks as the market digests the Fed’s dovish guidance. The Bank of Japan may relax its yield curve control at its policy meeting and Norway’s central bank moved up the timing of its first expected rate hike. Europe’s fighting over vaccine supply worsens. Nike reports earnings after the bell. And oil is drifting lower as traders trim their bets on a demand recovery. Here’s what you need to know in financial markets on Thursday, March 18th.
1. Bond sell-off resumes as market digests Fed message
The sell-off in long-dated bonds resumed overnight as the market digested just how dovish the Federal Reserve’s messaging was after its policy meeting. The Fed doubled down on its assumptions that underemployment across the economy will keep core personal consumer expenditures, its preferred measure of inflation, to only a little over 2% through 2023.
The yield on the 10-year Treasury note rose as high as 1.75%, its highest since January 2020, while the 30-year bond yield topped 2.50% for the first time in three years before retracing to 2.49% by 6:20 AM ET (1020 GMT). The moves add spice to the Treasury’s auction of inflation-linked 10-year notes at 1 PM ET.
Fed Chair Jerome Powell repeated that the central bank doesn’t expect to increase rates until 2024, although the Fed’s ‘dot plot’ indicated a growing minority of policymakers think action will be necessary before then: 4 out of 18 Fed officials now forecast a rate hike in 2022, while seven expect one in 2023.
2. Central banks start to move
Other central banks around the world are in motion already: the newspaper Nikkei reported that the Bank of Japan intends to widen its target band for Japanese government bond yields, allowing them to move upwards slightly. Norway’s central bank said it intends to start raising its key rate later this year, earlier than it previously guided for.
That follows Brazil’s central bank hiking its key rate by 75 basis points to 2.75% at its meeting on Wednesday to contain inflation. Turkey’s central bank is widely expected to announce a rise in the key one-week rate at 7 AM ET (1100 GMT).
However, it’s not all go. The Bank of England is expected to keep its policy unchanged at 8 AM ET, while Indonesia’s central bank also held fire overnight.
3. U.S. stocks set to open mostly lower as tech slips again
The rise in bond yields is again hurting ‘long-duration’ technology stocks – i.e. those whose cash flows are skewed to dates far out in the future – with futures reverting to a familiar pattern of tech underperformance overnight.
By 6:20 AM ET, Nasdaq 100 futures were down 1.2%, while S&P 500 futures were down 0.5%. Dow Jones futures, with their heavier weighting toward cyclical stocks, were up 19 points, or 0.1%.
Stocks likely to be in focus later include Tesla (NASDAQ:TSLA), after the latest incident indicating trouble with its Autopilot software, and banking stocks in general, after the Fed put off a decision on reimposing the Supplementary Leverage Ratio as a binding capital constraint from April.
Dollar General (NYSE:DG) and Accenture (NYSE:ACN) are set to report earnings before the open, while Nike (NYSE:NKE) and FedEx (NYSE:FDX) will report after the close, the latter reporting at a time when it’s under pressure from investigations into working conditions at its facilities.
4. Europe’s vaccine disarray
The U.K.’s vaccination campaign – one of the furthest advanced in the world – looks like grinding to a halt, due to delivery problems with the AstraZeneca (NASDAQ:AZN) vaccine and, more pressingly, an export ban by the European Union.
U.K. Health Secretary Matt Hancock warned of a sharp reduction in the supply of vaccines on Tuesday, which Bloomberg sources attributed to problems at facilities making the drug in India for AZN. EU Commission President Ursula von der Leyen meanwhile threatened to halt exports of vaccines to the U.K., including AZ’s.
Von der Leyen also warned that the EU is on the verge of a third wave of Covid-19 infections. France and Poland registered their highest number of new cases since November on Wednesday, although the Czech Republic and, to a lesser extent, Italy, appear to be flattening their infection curves again.
5. Oil drifts lower after inventories disappointment
Crude oil prices continued to drift lower in the wake of the International Energy Agency’s sobering assessment of the supply-demand balance in its monthly report on Wednesday. The effect of that was amplified by another surprising rise in weekly U.S. crude inventories.
Concerns about demand have been amplified by the recent surge in cases in India, which has halted an impressive improvement in mobility trends, notably in the state of Maharastra, home to over 110 million people.
By 6:30 AM ET, U.S. crude futures were down 0.5% at $64.32 a barrel, while Brent crude was down 0.4% at $67.72 a barrel.
Source: Economy - investing.com
