Key Takeaways:
Global bond yields are climbing to multi-year highs, squeezing equity valuations and pressuring tech-heavy futures.
U.S. stock futures slipped Tuesday as a global bond selloff pushed the 10-year Treasury yield to a near 20-month high of 4.78 percent, pressuring equity valuations. Dow futures fell 0.24 percent, S&P 500 futures dropped 0.17 percent, and Nasdaq 100 futures slid 0.39 percent, with semiconductor and memory chip stocks leading the decline.
"The macro mix is turning more challenging for duration and risk assets," said Wee Khoon Chong, APAC Macro Strategist at BNY. "Hawkish monetary policy, renewed geopolitical and inflation risks, and rising fiscal concerns are converging to maintain the upward pressure on global term premiums and long-end yields."
The yield surge is global in scope. Japan's 10-year JGB yield is closing in on 3 percent, a level not seen for a generation, while German and French long bond yields hit 15-year highs Monday. Bund futures made a new 15-year low in Asia trade Tuesday, and French OAT futures traded at their lowest since launching in 2012.
Chip stocks weigh on Nasdaq futures
Semiconductor weakness was the primary drag on tech futures. Micron Technology fell over 2 percent pre-market, SanDisk dropped nearly 4 percent, and Seagate Technology slipped nearly 1.5 percent, following "Big Short" investor Michael Burry's disclosure of new short positions on AI and semiconductor stocks. The optical communications sector also weakened, with Corning down 2.3 percent after profit-taking following a 15.67 percent surge Monday, while Marvell Technology fell about 1.6 percent.
The bond selloff is being reinforced by geopolitical and inflation pressures. Brent crude topped $91 a barrel in Asia trade after renewed U.S.-Iran fighting, while Europe's benchmark gas price closed at a more than 3-1/2-year high Monday. Wheat prices are trading near three-year highs as Russia-Ukraine fighting escalates.
Rate hike expectations build
Markets are pricing an interest rate hike in New Zealand on Wednesday and an increase in Europe next week. Hikes this month in the U.S. and Japan are at better-than-even odds, after Fed Chair Kevin Warsh signaled policymakers could move if price pressures fail to ease. U.S. jobs data on Friday could open the door to a rate hiking cycle starting as soon as this month.
The yield move has already rippled through Asian equities. Japan's Nikkei dipped 0.2 percent in early trade, and the Hang Seng fell 0.7 percent, with the tone set by the lackluster debut of clothier Shein Global, which traded just below its IPO price. The fast-fashion retailer has been hit by tariff and duty changes in the U.S. and Europe that have eroded a key pillar of its low-cost business model.
Because the rise in borrowing costs has been global, it has offered only limited support to the U.S. dollar. The euro was steady at $1.1619, and the yen traded at 159.76 to the dollar. Preliminary inflation figures are due in Europe later Tuesday.
This article is for informational purposes only and does not constitute investment advice.
