MARKET SNAPSHOT: Dow Futures Slide 135 Points As Traders Keep A Wary Eye On Bonds

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01/10/2018 | 01:51 pm


By Sara Sjolin, MarketWatch



10-year U.S. yields rise further above 2.5%



U.S. stock futures slumped on Wednesday, as investors paused for breath and booked some profits after a string of all-time highs that helped the S&P 500 score its most records in a new year since 1964.



Traders were also keeping an eye on U.S. bonds, as the yield on the 10-year Treasury note moved closer to 2.60% after a report that China is considering stopping its U.S. bond buys.



What are stock futures doing?



Futures for the Dow Jones Industrial Average dropped 101 points, or 0.4%, to 25,272, while S&P 500 index futures lost 9.05 points, or 0.3%, to 2,743.50. Nasdaq-100 futures gave up 34.25 points, or 0.5%, to 6,652.75.



The indicated pullback comes after all three major U.S. benchmarks scored all-time closing highs on Tuesday , even as the S&P 500 index ended only 0.1% higher and the Nasdaq Composite Index climbed less than 0.1%. The Dow average rose 0.4%.





With the fresh round of all-time highs, the S&P has now logged records for six straight sessions--or all of the 2018 trading days--tying with 1964 for the longest streak of records to begin a new year.



What is driving the markets?



After the record run, Wednesday's pullback was seen as merely a pause in the rally and as traders took the chance to take some profits.



Investors were, however, watching U.S. bonds as the yield on the 10-year benchmark note rose 3 basis point to 2.58% after a Bloomberg report (https://www.bloomberg.com/news/articles/2018-01-10/china-officials-are-said-to-view-treasuries-as-less-attractive) that China is considering halting or cutting its purchases of U.S. government paper.



Yields had jumped 6.2 basis points to 2.542% on Tuesday, its highest level since March, after the Bank of Japan cut its bond purchases, sparking chatter that the Japanese central bank is getting ready to end years of ultraloose monetary policy.





Rising yields can be a two-edged sword for stock markets. When the gain comes from a low base, it can signal that investors are becoming more confident about the economic outlook and therefore dumping safe-haven bonds. That fans a risk-on mood--an appetite for riskier investments--in broader markets.





However, if yields rise too fast or too high, that move tends to weigh on the stock market, because it becomes more attractive to invest in the bond market rather than in stocks.



What are strategists saying?



Having seen the recent records for stocks "there was always the prospect we might start to see a little bit of profit-taking," said Michael Hewson, chief market analyst at CMC Markets, in emailed comments.



"This morning's price action in Asia and Europe looks like the perfect excuse for that, as bond yields at the longer end of the curve push higher in response to yesterday's surprise reduction by the Bank of Japan in their bond buying program. A little bit of risk-off in the Nikkei and DAX appears to be weighing on early premarket indications of a lower U.S. open for the S&P 500 and the Dow," he said.



What are other markets doing?



Stocks in Asia closed mixed , with Japan's Nikkei 225 index ending 0.3% lower.



In Europe , stocks were mostly lower, as the Stoxx 600 index fell from its highest close since August 2015.



Oil prices continued to rally , sending the West Texas Intermediate February contract 1% higher to a fresh three-year high.



Gold rose 0.8%. The ICE dollar index fell 0.6% to 91.990 as the greenback tanked against the yen. The dollar bought Yen111.36, down from Yen112.65 late Tuesday in New York.





In cryptocurrencies, the bitcoin spot price dropped 3.5% to $13,938.43, while bitcoin futures lost 4.3% to $14,120. Ripple coins slumped 14% to $1.96, according to CoinMarketCap.com data.



Which stocks are in focus?



Shares of Eastman Kodak Co.(>> Eastman Kodak Company) soared 77% in heavy premarket trade, set to build on a 119% surge from Tuesday when the image-technology company said it is launching a cryptocurrency and would begin a "major blockchain initiative."



United Continental Holdings Inc.(>> United Continental Holdings Inc) rose 1.2% ahead of the bell after the airline late Tuesday said its December traffic rose 2.7% year-over-year .



Apple Inc. shares(>> Apple) slipped 0.9% as the tech giant faced new questions from the U.S. and France over its battery-related performance issues on iPhones.



Lennar Corp.(>> Lennar Corporation) slid 4% premarket after the home builder reported weaker-than-expected profit for its fiscal fourth quarter.



Signet Jewelers Ltd.(>> Signet Jewelers) fell 5%. The jewelry retailer said same-store sales in the holiday period fell 5.3%.



Domino's Pizza Inc.(>> Domino's Pizza, Inc.) dropped 2.5% after the fast food chain late Tuesday said President and Chief Executive J. Patrick Doyle will leave the company on June 30 .



What's coming up in economic data?



The import price index for December is due at 8:30 a.m. Eastern Time, while wholesale inventories for December are slated for release at 10 a.m. Eastern.



Chicago Fed President Charles Evan will give a speech at the Lake Forest Club economic breakfast at 9 a.m. Eastern.





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