U.S. stock futures indicated a downward trend early Tuesday as the bond market continued its recent volatility, with investors
recalibrating their expectations for Federal Reserve interest rate cuts while preparing for a busy corporate earnings season.
Treasury yields extended their climb, with the benchmark 10-year note reaching a three-month high of 4.208% ahead of the New York trading session. This follows Monday’s bond market selloff, which saw yields rise 11 basis points. The Merrill Lynch MOVE index, a measure of fixed income volatility often referred to as the ‘VIX for bonds’, has surged to its highest levels of the year, up nearly 48.6% from early July lows.
Several factors have contributed to the recent bond market turbulence, including messaging from Federal Reserve officials hinting at a slower pace of rate cuts, uncertainty surrounding the upcoming election, the prospect of higher deficits regardless of the election outcome, and renewed inflation concerns tied to the robust economy.
The bond market’s instability is dampening risk sentiment across global markets and propelling the dollar index to multi-month highs against a basket of major currencies. This shift in market dynamics is reflected in the premarket session, with futures contracts linked to the S&P 500 pointing to a 28-point decline. The Dow Jones Industrial Average is expected to open 200 points lower, while the Nasdaq is poised for a 130-point drop.
In corporate news, a flurry of earnings reports hit the wires before the market open. General Motors posted stronger-than-expected third-quarter profits and provided an optimistic near-term outlook, sending its shares up 2.9% in premarket trading to $50.35. 3M, which has seen a 48% increase in its stock price this year, also topped Street forecasts, with its shares rising 2.35%. GE Aerospace reported mixed results, with slightly lower-than-anticipated revenues, causing its stock to slip 1.15% in early trading.
European markets mirrored the cautious sentiment, with the Stoxx 600 down 0.38% in early Frankfurt trading. However, software giant SAP bucked the trend, reaching a new all-time high following
better-than-expected third-quarter earnings. In London, the FTSE 100 declined 0.64%.
Asian markets also felt the impact of global risk aversion. Japan’s Nikkei 225 fell 1.39% as investors reduced risk exposure ahead of upcoming national elections and the yen weakened to a three-month low of 151 against the U.S. dollar. The regional MSCI ex-Japan benchmark dropped 0.77% by the close of trading.
As the trading day unfolds, Wall Street will be closely watching a series of earnings reports from major companies. 3M, GE Aerospace, Lockheed Martin, and Verizon are scheduled to report before the opening bell, while Texas Instruments will update investors after the market close.
The current market environment underscores the delicate balance between economic growth, inflation concerns, and monetary policy expectations. As bond yields continue to climb and volatility persists, investors will be keenly focused on corporate earnings and economic data for clues about the market’s direction in the coming weeks and months.