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Dow Futures Slide as Coronavirus Lockdown Easing Triggers New Cases; Bond Yields Rise Ahead of Billions in Treasury Borrowing

With S&P 500 earnings nearing the first quarter finish line, and jobless data underscoring the economic damage of the coronavirus pandemic, stocks could struggle to hold their recent gains this week.

The Monday Market Minute

  • Global stocks edge cautiously higher as lockdown restrictions in major countries ease, but concern for the strength of their underlying economies caps gains.
  • Britain lays out tentative coronavirus exit steps, while France emerges from Europe's strictest lockdown today as infection rates show persistent signs of abating.
  • New York state's lockdown could ease on May 15, with several states read to outline re-opening plans in the coming days.
  • Bond yields rise as investors brace for $96 billion in debt auctions this week as the government starts is $3 trillion borrowing surge.
  • Oil prices slump as investors worry that a lack of storage space, and a global crude glut, could trigger a repeat of the May contract expiry. 
  • Wall Street futures suggest a flat open ahead of what is essentially the final week of major S&P 500 earnings as well as inflation and retail sales data on Tuesday and Friday respectively.

U.S equity futures edged lower Monday, while the dollar held firm and bond yields rose, as investors keyed on the re-opening of major economies around the world from coronavirus-triggered lockdowns and braced for a wave of Treasury auctions designed to fund the myriad Wall Street rescue plans.

With Britain outlining its first -- albeit unclear -- guidelines on breaking its months-long lockdown, and countries such as France and Germany inching towards greater flexibility for both consumers and citizens, investors are hopeful the worst of the coronavirus shutdowns could be behind us. 

Several U.S. states are likely to follow suit this week, including New York, which is expected to ease restrictions from May 15 as rates of infections slow. 

However, with last week's payroll report showing a staggering 20.5 million Americans fell into unemployment over the month of April, tripling the headline rate to 14.7%, and future data releases likely to underscore significant, if not historic, damage to the domestic economy, stocks could struggle to hold their gains in the coming weeks.

Investors were also spooked by a rise in cases in two countries -- Germany and South Korea-- following the relaxation of lockdown rules and the gradual re-opening of businesses and factories. 

Equity market risk could also be exacerbated by a lack of headline-driving corporate earnings, as more than 86% of the S&P 500 has already published their quarterly profit details. 

Around 20 more companies will report this week, with Walmart  (WMT) , Home Depot  (HD) , Lowe's  (LOW) , Target  (TGT)  and Best Buy  (BBY)  to follow next week, but they're unlikely to alter the 12% year-on-year decline for S&P 500 earnings over the first quarter, nor the anticipated 40.8% plunge for the three months ending in June.

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With that in the windscreen, Wall Street futures are indicating modestly lower opening bell prices for the three major indices, with the Dow Jones Industrial Average looking at a 260 point slip and the S&P 500 set to fall 30 points at the start of trading.

Bond markets are also bracing for a possible end to the rally that pushed 2-year notes to a record low of 0.109% last week, with the Treasury set to auction $96 billion in new debt over the next five days as part of a drive to borrow and the $3 trillion required to fund the various government and central bank rescue programs over the second quarter.

Benchmark 10-year Treasury note yields were last seen trading at 0.695%, while 2-year paper bumped 5 basis points higher to 0.161% and the dollar index gained 0.33% against a basket of its global peers to trade at 100.064.

European stocks extended declines throughout the morning session, even with the lockdown optimism, as the Stoxx 600 traded 1% lower and Britain's FTSE 100 slipped 0.5% in London.

Global oil prices slumped lower on concerns that the ongoing supply glut, as well as a lack of U.S. storage space, would offset OPEC production cuts and trigger a repeat of last month's May futures fiasco, where prices traded in negative territory as speculators paid buyers to take their unwanted crude as contracts expired.

Front-month WTI futures contracts, which expire on June 20, were last seen 48 cents lower from their Friday close in New York and changing hands at $24.26 per barrel.

Brent futures for July delivery, which benchmark around 60% of global crude purchases, were marked 76 cents lower at $30.21 per barrel.

Overnight in Asia, Japan's Nikkei 225 jumped 1.05% to close at 20,390.66 points as the yen weakened and the government said it could ease emergency coronavirus measures in the coming days, while the region-wide MSCI ex-Japan benchmark rose 0.9%  heading into the final hours of trading.