The Wednesday Market Minute
- U.S. equity futures reverse earlier gains as bond yields tumble, yield curve inversion intensifies, amid increasing concerns for U.S. economic growth.
- U.S. Treasury curve now 10 basis points inverted between 3-month bills and 10-year notes after tipping for the first time since 2007 last week.
- U.K. Prime Minister Theresa May could announce a date for her departure later today in order to get enough lawmakers on board to support her twice-defeated Brexit deal.
- Global oil prices slide as growth questions offset OPEC+ production cuts, although prices remain near four-month highs ahead of EIA stockpile data.
- U.S. equity futures suggest a 84 point decline for the Dow ahead of January trade data at 8:30. am Eastern Time.
U.S. equity futures gave back earlier gains Wednesday, and now suggest a negative open on Wall Street, as U.S. Treasury bond yields tested fresh multi-month lows, further inverting the interest rate curve and raising new questions of the risk of recession in the world's biggest economy.
Benchmark 10-year Treasury note yields were marked 5 basis points lower in early New York trading at 2.35%, the lowest since December 2017 and a move that extends their decline since Federal Reserve Chairman Jerome Powell's press conference on rates last week to around 26.2 basis points.
The yield gap between 3-month Treasury bills and 10-year notes, meanwhile, extended to minus 10 basis points, creating a so-called inverted yield curve, a continue which Federal Reserve studies have shown to predate every U.S. recession for the past 60 years, exaggerated in part by the weakest February housing starts data in 18 months and last week's grim reading for U.S. manufacturing activity.
Benchmark German bund yields, meanwhile, fell deeper into negative territory after European Central Bank President Mario Draghi said "substantial accommodation" in the currency area economy was still needed to "secure the path of inflation convergence".
Germany's Debt Management Office, meanwhile, sold €2.433 billion in 10-year bunds at a negative yield of 0.005%, while getting more than €6.31 billion in bids for the first benchmark sale with a negative yield in nearly three years.
U.S. equity futures now suggest a 90 point decline for the Dow Jones Industrial Average at the start of trading on Wall Street, with contracts tied to the S&P 500, which has slowed gains to just 1.22% this month, suggesting a 9 point pullback for the broader benchmark.
Boeing (BA - Get Report) shares were indicated lower, taking around 20 points from the Dow, as Federal Aviation Administration officials prepared for a grilling from U.S. lawmakers on Capitol Hill and news of an emergency landing of one of its 737 MAX 8 planes unsettled investors following two deadly crashes of the controversial aircraft.
Apple Inc. (AAPL - Get Report) shares, meanwhile, extended modest gains ater the U.S. International Trade Commission ruled against banning imports of some of its iPhones linked to a complicated patent dispute with Qualcomm Inc. (QCOM - Get Report) .
Lennar Corp. (LEN - Get Report) shares were marked 0.4% lower after it posted modestly weaker-than-expected first quarter earnings as slow housing starts hit the second-largest U.S. homebuilder's bottom line even as mortgage rates eased.
The bond market moves reversed earlier gains for global stocks, which had edged higher on hopes of fresh stimulus from Beijing after a steeper-than-expected decline in profits for China's major industrial companies, which fell 14% over the first two months of the year to a 2011 low.
The figures rattled regional investors who have been concerned of a lack of progress in trade talks between Washington and Beijing, although China stocks rebounded on hopes the government would deepen their fiscal response to the slowest pace of growth for the world's second largest economy in several decades.
European stocks were marked 0.4% lower by late morning in Frankfurt while Britain's FTSE 100 slid 0.32% as the pound held at 1.3207 against the greenback.
Prime Minister Theresa May is reportedly ready to indicate a date by which she will resign her position in order to convince recalcitrant lawmakers to support her twice-defeated Brexit deal, although political analysts aren't sure she'll find enough votes to push it over the line.
In the meantime, Parliament will vote on a series of "alternatives" to her plan later today, but, again, analysts think there's little chance the House will find a majority for any one option, even as the deadline to leave the European Union on April 12 looms ever-closer.
Global oil prices were also on the back foot, with Brent crude reversing gains that have taken the global benchmark some 40% higher since hitting a multi-year low on Christmas Eve, as world growth questions offset OPEC production cuts and sanctions on the sale of crude from Iran and Venezuela that continue to disrupt price discovery.
A surprise increase in domestic crude supplies of 1.2 million barrels reported by the American Petroleum Institute, as well as a stronger U.S. dollar weighed on WTI prices ahead of today's official reading on stockpiles from the Energy Information Administration.
Brent crude contracts for May delivery, the global benchmark for oil prices, were marked 25 cents lower from their Tuesday close in New York and changing hands at $67.72 per barrel in early European dealing while WTI contracts for the same month, which are more tightly linked to U.S. gasoline prices, were seen 50 cents lower at $59.44 per barrel.