The Friday Market Minute

  • Global stocks retreat as bond yields rise, dollar bounces higher following a Federal Reserve statement that essentially re-states its hawkish rate path.
  • Benchmark 2-year Treasury note yields trade at the highest level in a decade as investors react to a Fed whose policy is diverging from major central banks around the world.
  • Global oil prices slide into bear market territory as record high U.S. output, rising crude stocks and waning end demand offset now-discounted Iran sanctions. 
  • U.S. equity futures drift lower as global stocks pullback, potentially snuffing out the best week on Wall Street in at least nine months, with the Dow called 120 points lower at the opening bell.

Market Snapshot

The Federal Reserve's interest rate signalling, which lifted U.S Treasury bond yields and boosted the dollar, looks to have stalled this month's global equity market rally Friday as stocks in Asia and Europe give back gains and Wall Street futures drift lower heading into start of trading. 

Fed Chairman Jerome Powell and his colleagues essentially reiterated their view of the economy Thursday, following a two-day meeting in Washington that was delayed by this year's midterm elections, that had informed their decision to raise the Fed Funds rate to a range of 2% to 2.25% in September.

That view, alongside data suggesting accelerating wage growth and a tightening job market, cemented bets of a December hike and increased the chance of at least two more moves next year, sending benchmark 2-year Treasury note yields to a ten-and-a-half year high of 2.977% and helped the dollar rebound firmly on foreign exchange markets. 

"Equities across Asia are in red today as the Fed, as expected, is utterly unwavering on policy and suggested as plainly as can be that they remain on course to raise interest in December," said Stephen Innes, head of Asia-Pacific trading at Oanda.  "The equity selloff should be a common thread into weeks end in both European and US markets."

The region-wide MSCI Asia ex-Japan index, the broadest measure of regional stocks, was marked 1.3% lower heading into the final hours of trading, with stocks in China falling around 1.4%, while Japan's Nikkei 225 shed 1.05% to close at 22,250.25 points.

U.S. stocks are likely to be caught in the Fed decision downdraft, as well, with futures contracts tied to the Dow Jones Industrial Average indicating a 120 point opening bell decline while those linked to the S&P 500 suggesting an 16 point pullback for the broader benchmark. 

Walt Disney (DIS) shares are likely to be active in early Friday trading after the media group posted stronger-than-expected sales and earnings for its fiscal fourth quarter, which ended in September, late Thursday and said its new streaming service, which will launch later next year, will include a new Star Wars prequel as part of its effort to challenge Netflix (NFLX) in the global online content market.

Disney share were marked 1% higher in after-hours trading in New York Thursday, indicating an opening bell price today of $117.26 each.

European stocks were also weaker at the start of trading, with the Stoxx 600 benchmark falling 0.27% and the FTSE 100 in London shedding 0.55% as both markets continue to suffer from the uncertainty surrounding Brexit negotiations and the ongoing budget standoff between Brussels and Rome over Italy's near-term budget projections, which are set to breach EU deficit rules and add billions in new borrowing to an economy already staggering under a debt-to-GDP ratio of 132%.

Global oil prices extended declines Friday, pulling both Brent and WTI contracts to within whisker of bear market territory -- a condition where prices fall 20% from a recent peak -- as investors continue to focus on a build-up in U.S. crude stocks, record production rates and waning global demand over the impact of Iranian sanctions which kicked-in earlier this week.

Brent crude contracts for January delivery, the global benchmark, were seen 90 cents lower from their Thursday close in New York and changing hands at $69.75 per barrel, the lowest since April 9, extending their decline since the October 4 peak to 18.5%.

WTI contracts for December, which are more tightly liked to U.S gas prices, were marked 8 cents lower at $59.69 per barrel, the lowest since March 8 and some 22% from the October 4 peak of $76.41.

 

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