Dow Futures Rebound On Recovery, Stimulus Bets; Treasury Yields Jump Ahead of Record $38 Billion Auction

Benchmark 10-year Treasury yields rose to a five-week high of 0.68% Wednesday ahead of a record $38 billion auction in new bonds that will partly fund the government's myriad coronavirus relief efforts.

The Wednesday Market Minute

  • Global stocks resume gains on recovery and stimulus hopes, with a potential U.S.-China meeting on trade boosting sentiment.
  • Bloomberg reports trade officials will meet next week to discuss the phase 1 trade deal, with talks likely to also focus on the U.S. banning of TikTok and WeChat.
  • Gold prices tumble back towards $1,900 per ounce as global market sentiment improves, while 10-year bond yields rise to 0.676% ahead of a record Treasury auction.
  • Oil prices bump higher on EIA outlook and API drawdown, lifting Brent crude back towards $45 per barrel.
  • U.S. equity futures suggest a firmer open on Wall Street ahead of a $38 billion 10-year bond auction later in the session.

U.S. equity futures resumed gains Wednesday, while Treasury bond yields surged and gold prices extended their recent slump, as investors looked to sings of a broader global recovery, and fresh U.S. stimulus, while shrugging off tensions between Washington and Beijing. 

Trade representatives from the U.S. and China are set to meet next week to discuss various aspects of the phase 1 trade agreement signed earlier this year, according to Bloomberg, with data showing little more than 5% compliance on U.S. purchases by Chinese officials.

Bloomberg also reported that issues such as the forced sale of TikTok's U.S. operations, and the banning of WeChat, will be raised during the meeting, which come amid heightened political tensions between the world's two biggest economies.

However, improving economic data from both Europe and Asia, the lingering effects of $20 trillion in government and central bank stimulus and hopes of a near-term agreement between lawmakers on Capitol Hill for a new round of coronavirus relief for out-of-work Americans has stocks trading higher Wednesday, with the S&P 500 again moving to within striking distance of its February all-time high.

Futures contracts tied to the Dow Jones Industrial Average suggest a 250 point opening bell gain, a move that would take the average back towards the 28,000 point mark, while those linked to the S&P 500 are pricing for a 25 point advance for the broader benchmark. Nasdaq futures are indicting a 10 point opening bell gain for the tech-focused index.

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The larger, and perhaps more important overnight move, however, came in the bond market, where benchmark 10-year U.S. Treasury note yields jumped to 0.68%, some 16 basis points from last week's levels and the highest in five weeks, as traders and investors braced for $38 billion in new supply later today and the largest 10-year bond auction in history. 

The U.S. dollar index, which gauges the greenback against a basket of its global currency peers, was 0.12% lower at 93.518 in overnight trading as sentiment improved, while gold prices extended their recent retreat, falling to $1,930.68 per ounce and more than $100 shy of the all-time high reached late last week.

European stocks were modestly higher in the early Frankfurt session, with the Stoxx 600 rising 0.33%, while Britain's FSTE 100 added 1.17% even after data showed the U.K. economy entered recession in the second quarter with a 20.4% GDP contraction, the largest on record and the biggest of any major global economy. 

Global oil markets used a weaker U.S. dollar, a larger-than-expected decline in domestic crude stocks of 4 million barrels reported by the American Petroleum Institute and a boost in the Energy Department's 2020 demand forecast to bump crude prices higher, clawing back some of the losses from yesterday's late-afternoon selloff.

WTI contracts for September delivery, the U.S. benchmark, traded 65 cents higher from their Tuesday close in New York and were changing hands at $42.26 per barrel in early European dealing while Brent contracts for October, the new global benchmark, were seen 67 cents higher at $45.17 per barrel.

Overnight in Asia, Japan's Nikkei 225 ended the session 0.4% higher at 22,843.96 points while the region-wide MSCI ex-Japan benchmark slipped 0.14% as China stocks traded in the red for a second consecutive session, offsetting gains in Hong Kong and South Korea.