US Stock Futures Drop as High Yields Sour Mood: Markets Wrap

(Bloomberg) — US stock futures extended declines as Treasury yields near the highest level this year fanned concern about restrictive monetary policy.

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Contracts for US equities fell 0.4%, pointing to a second day of declines on Wall Street, while Europe’s Stoxx 600 edged higher amid gains for drugmaker Novo Nordisk A/S and online car marketplace Auto Trader Group Plc. The 10-year Treasury yield hovered near 4.60% after a 15 basis-point jump in the past two days.

Global equities are headed for their worst week since mid-April as US rate-cut expectations dwindled with inflation still sticky. Another weak US auction result on Wednesday heightened worries that funding the US deficit will drive up yields.

Data this week could prove key as investors refine their monetary policy outlook: The US posts gross domestic product numbers later Thursday, and inflation reports from the US and Europe are due Friday.

“The market has fallen under the spell of the bond market genie and higher yields,” said Tony Sycamore, market analyst with IG Australia Pty Ltd. “The focus has turned to managing downside risks should we see firmer-than-expected US or European inflation data tomorrow.”

As optimism over US rate cuts fades, BlackRock International Ltd. is becoming “more targeted” with its view on bond duration, sticking to the front end and the belly of the US Treasuries curve, according to Karim Chedid, the firm’s EMEA investment strategy head.

“We see that as the area where you’re still getting the most bang for buck in terms of income for stability,” he said in an interview with Bloomberg Television.

While the rally in tech companies is underpinned by fundamentals and remains one of the asset management giant’s “key sector overweights,” Chedid says there are growing inflows into European and Japanese equities.

The prospect of a rate cut from the European Central Bank at its June meeting is helping, as is “a bottoming out in the macro data in Europe, which investors are liking,” Chedid said. “Earnings have seen a significant upgrade in Europe over the past 12 months.”

Rand Slides

Elsewhere, the rand extended losses and banking stocks fell as South Africa’s election vote count gathers pace. The ruling party looks set to fall well short of obtaining a parliamentary majority for the first time since it came to power.

Story continues

South Africa’s ANC May Lose National Majority, Model Shows

In commodities, crude traded steady as traders look to US stockpile data and an OPEC+ meeting on the weekend for more clarity on the supply and demand outlook.

Corporate Highlights:

• Goldman Sachs analysts initiated coverage of six large-cap pharmaceutical stocks on Thursday, saying “innovation is the key to success.” They gave buy ratings to AstraZeneca Plc, Novo Nordisk A/S and Novartis AG, and are neutral on GSK Plc and Bayer AG. Roche Holding AG is their sole sell rating.

• China is poised to impose a record fine on PricewaterhouseCoopers LLP and suspend some of the global auditor’s local operations over its role in one of the nation’s biggest alleged financial fraud cases, according to people familiar with the matter.

• Golden Goose is launching a primary offering of €100 million ($108 million) in an initial public offering in Milan as the Italian luxury sneaker brand aims to strengthen its capital structure and reduce debt.

• Saudi Arabia is preparing to formally launch a secondary offering of shares in oil giant Aramco as soon as Sunday, a deal that could raise more than $10 billion and rank among the largest of its kind in recent years.

• Brookfield is in exclusive talks to acquire a majority stake in Neoen SA in a deal valuing the French renewable energy developer at about €6.1 billion.

Key events this week:

• Eurozone economic confidence, unemployment, consumer confidence, Thursday

• US initial jobless claims, GDP, Thursday

• Fed’s John Williams and Lorie Logan speak, Thursday

• Japan unemployment, Tokyo CPI, industrial production, retail sales, Friday

• China official manufacturing and non-manufacturing PMI, Friday

• Eurozone CPI, Friday

• US consumer income, spending, PCE deflator, Friday

• Fed’s Raphael Bostic speak, Friday

Some of the main moves in markets:

Stocks

• The Stoxx Europe 600 rose 0.3% as of 10 a.m. London time

• S&P 500 futures fell 0.4%

• Nasdaq 100 futures fell 0.4%

• Futures on the Dow Jones Industrial Average fell 0.8%

• The MSCI Asia Pacific Index fell 1%

• The MSCI Emerging Markets Index fell 1.3%

Currencies

• The Bloomberg Dollar Spot Index was little changed

• The euro rose 0.1% to $1.0815

• The Japanese yen rose 0.5% to 156.92 per dollar

• The offshore yuan rose 0.3% to 7.2532 per dollar

• The British pound was little changed at $1.2713

Cryptocurrencies

• Bitcoin rose 0.4% to $67,681.3

• Ether fell 0.4% to $3,735.16

Bonds

• The yield on 10-year Treasuries declined two basis points to 4.59%

• Germany’s 10-year yield declined two basis points to 2.67%

• Britain’s 10-year yield declined three basis points to 4.37%

Commodities

• Brent crude was little changed

• Spot gold fell 0.1% to $2,335.55 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Masaki Kondo and Chiranjivi Chakraborty.

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