Futures drop, yields rise in ‘post-Fed hangover’
Stock futures fell, while bond yields rose alongside the dollar after the latest reading on jobless claims just reinforced the case for the Federal Reserve’s higher-for-longer stance.
S&P 500 contracts signaled the gauge was set to drop below 4,400. Nasdaq 100 futures lost over 1%.
Cisco Systems slipped after agreeing to buy cybersecurity company Splunk in a $28 billion deal.
Broadcom sank on a report that Alphabet’s Google is considering dropping the company as a supplier for artificial intelligence chips as soon as 2027.
FedEx, a proxy for global growth, rose after a bullish outlook.
Treasury 10-year yields climbed toward the highest since October 2007.
The dollar briefly hit the strongest in six months, rising against all of its developed-market peers – except the yen – with the Japanese currency inching closer to the 150 level that some analysts consider to be a trigger for intervention.
The pound fell after the Bank of England kept rates unchanged for the first time in almost two years. Germany’s benchmark yields hit a 12-year high.
“There’s a post-Fed hangover in the market this morning and dark clouds over Wall Street,” according to strategists at Bespoke Investment Group.
“After the market followed the recent Fed-day script nearly step for step yesterday, international markets continued the downward trend overnight, and U.S. markets are picking up right where they left off yesterday.”
To Matt Maley at Miller Tabak, while the Fed signaled it will indeed keep rates higher for longer, the central bank “did seem to push that narrative to an even greater degree than expected” – by raising the growth outlook and where officials expect the Fed funds rate to be trading at future dates in a significant manner.
Applications for U.S. unemployment benefits fell to the lowest level since January last week, indicating a healthy labor market that continues to support the economy.
Initial jobless claims dropped to 201,000. The median estimate in a Bloomberg survey of economists called for 225,000 applications.
“Data dependence remains the pillar of the current policy bias, and an increasingly likely government shutdown that boosts the probability of delayed economic releases makes the Fed’s task even more challenging,” said Ian Lyngen at BMO Capital Markets.
“As investors continue to debate whether another tightening move will come to pass in November or December, there is certainly the risk that the information that could have justified a November tightening will not be made available in time for the Committee to hike until the final meeting of the year.”
Bond traders are bracing for Treasury yields to keep pushing higher after the Fed signaled it’s likely to hold interest rates at lofty levels well into next year.
Fifty-eight percent of the 172 respondents in the Bloomberg Markets Live Pulse survey conducted after the Fed’s decision said that 2-year Treasury yields have yet to peak, while a plurality expect 10-year yields to climb over 4.5%.
Two-year rates rose above 5.19% Thursday to a fresh 17-year high, while 30-year yields climbed to 4.48%, a level last seen in 2011.
Former Fed Bank of St. Louis President James Bullard said the central bank may need to raise rates further and hold them higher to guard against the risk of a reacceleration of inflation.