Stock index futures point to a lower opening Wednesday as some cash rotates back to bonds following the recent rout of Treasury prices.
Nasdaq 100 futures (NDX:IND) -0.6%, S&P futures (SPX) -0.4% and Dow futures (INDU) -0.3% all look set to give back some of yesterday’s gains. All the megacaps are lower premarket, while Financials are also lower after a strong move yesterday.
But direction could turn quickly with Fed Chairman Jay Powell set to speak before the opening bell.
Powell is appearing on a panel of central bank governors at the BIS Innovation Summit. That’s scheduled to start at 8 a.m. ET.
Rates are moving lower, with the yield curve steepening a bit and the gap between the 2s and 10s back above 20 basis points. The 10-year Treasury yield is down 1 basis points to 2.37% and the 2-year down 2 basis points to 2.13%.
“The big question now is whether all this prospective Fed tightening will push the economy into recession or whether policymakers can achieve the much sought-after ‘soft landing’ that avoids one,” Deutsche Bank’s Jim Reid wrote. “Readers will know that my favorite cycle indicator is the 2s10s, with an inversion of this curve having preceded every US recession in the last 70 years, and that’s alread flattened to its lowest levels of this cycle as mentioned.”
“However .. the Fed have long preferred measures like the spread between the 18m forward 3m yield and the 3m yield, which is the steepest on record in data going back to 1996,” Reid said. “So depending which metric you look at we’re either the closest or the furthest away from a recession we’ve been all cycle!”
“The best recession forecaster is an ‘inversion’, or tuning negative, of the 10Y-3M US yield curve,” eToro’s Ben Laidler said. “This is at a secure 1.8%. We see fundamentals as stressed but secure. But the better watched 10Y-2Y curve is only 0.2% and near inversion. This may drive volatility.”
Among active stocks, meme names will remain in focus after recent big moves higher. GameStop is rallying again premarket after chairman Ryan Cohen boosted his stake in the company to 11.9%.
In geopolitics, President Joe Biden embarks on a four-day trip to Europe today with more sanctions on Russia expected.