U.S. equity futures saw slight gains on Monday, while Treasury yields reached multi-year highs, and the U.S. dollar remained strong against other global currencies. Investors are closely watching for fresh growth and inflation forecasts and a key interest rate decision from the Federal Reserve later in the week.
In addition to the Federal Reserve, central banks in Japan, England, and Switzerland, as well as policymakers in Norway and Sweden, will be making their interest rate decisions this week. This week is filled with headline interest rate risks as investors anticipate that weakening global growth prospects, along with China’s slow post-Covid recovery, may signal the peak of the current tightening cycle.
Traders have largely priced in the expectation that the Fed will maintain its benchmark lending rate at a range between 5.25% and 5.5% later this week in Washington. Bets on a rate hike in November have diminished to around 30.8%.
Nevertheless, the fact that the Fed is indicating that interest rates will remain at their current levels for an extended period, likely into the next year, has not only reduced expectations of a rate cut in 2024 but has also pushed Treasury note yields to multi-year highs. This has created additional challenges for both consumers and corporate profits on Wall Street.
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At the start of Monday trading, the yield on the benchmark 10-year Treasury note had risen by 4 basis points from Friday’s levels, reaching 4.347%, while 2-year notes stood at 5.051%.
The U.S. dollar index, which measures the greenback against a basket of six major world currencies, showed a minor decline of 0.09%, settling at 105.226.
Global oil prices were also in motion, with Brent crude testing the $95 per barrel mark. This surge followed last week’s rally driven by Russia and Saudi Arabia extending production cuts and warnings from OPEC and the International Energy Agency about supply constraints. Brent contracts for November delivery were up 40 cents at $94.33 per barrel, and WTI crude for October delivery increased by 57 cents to $91.34 per barrel.
As Wall Street geared up for the trading day, S&P 500 futures indicated a 3-point gain, with the index remaining flat for the quarter but showing a 15.9% gain for the year. Dow Jones Industrial Average futures suggested a 7-point uptick, as the index enjoyed a three-day winning streak. Meanwhile, Nasdaq futures indicated a 20-point gain at the opening bell.
In international markets, a weaker yen boosted export stocks and propelled Japan’s Nikkei 225 to a 1.1% gain. However, concerns about China’s property market and reports of wealth managers at Evergrande Group being arrested weighed on the MSCI ex-Japan index, leading it to close 0.92% lower.
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In Europe, the Stoxx 600 in Frankfurt was down 0.63%, while London’s FTSE 100 experienced a 0.3% decline in early trading.
As the trading day unfolded, the Dow Jones Industrial Average slipped by 185 points.
