Wall Street Futures Slide as Bond Yields, Apple Earnings Complicate Sentiment

February 2, 2018

Frankfurt (Feb 2)  European stocks opened weaker Friday, while U.S. equity futures extended declines, as global investors eyed a sharp rise in government bond yields, a weakening U.S. dollar and mixed first quarter results from tech giant Apple Inc. (AAPL - Get Report)

Wall Street futures are pointing to a bumpy ride for equity investors Friday, with contracts tied to the Dow Jones Industrial Average marked 224 points, or 0.91%, below last night's closing levels. The broader S&P 500 is also trading in the red, down 20 points ahead of today's January non-farm payroll report which is expected to show that American companies created a net 180,000 new jobs last month. Nasdaq futures were priced 48.75 points to the downside.

In Europe, the Stoxx 600 index, the broadest measure of share prices, was marked 1% to the downside at 389.51 by mid-day in London as Germany's DAX performance index slumped another 1.22% thanks in part to a weaker-than-expected set of full year results from Deutsche Bank AG (DB - Get Report) , whose shares fell 5.9%

A notable spike in benchmark U.S. Treasury yields, which took 10-year notes to a near four-year high of 2.8% in overnight Asia trading, has investors on hedge amid signals of faster inflation in the world's largest economies and the impact it will have on growth and interest rates.

"We've a weak dollar even as the entire US yield curve is lifting," said Saxo Bank strategist John Hardy. "The plot is very thick on interest rate rises and today's NFP data will feed into this especially if average hourly earnings surprise to the upside. We've already seen that tax reform has boosted wages in several states."

The U.S. Federal Reserve has signalled at least three rate hikes this year, and the European Central Bank is widely expected to at least ease the pace of its €2.55 trillion quantitative easing program later this year amid the strongest economic performance for the region in a decade.

The dollar, however, has yet to respond to the so-called "reflation trade", with the greenback holding at near three year lows of 88.82 against a basket of global currencies overnight as investors remain concerned about the partisan battles among U.S. lawmakers and the potential for another government shutdown next week as they squabble over budget allocations and immigration rules.

The dollar's declines kept stocks in Asia on the back foot last night, with the MSCI Asia ex-Japan index falling 0.69% and the Nikkei 225 ending the week 0.9% to the downside at 23,274.53 points.

Sentiment in the region was also held down by a mixed set of first quarter earnings from Apple, which unveiled record revenues for the three months ending in December of $88.3 billion and profits of $3.89 a share, but disappointed investors by selling fewer than expected iPhones over the period (77.3 million) and forecasting a less-than-anticipated sales for its current fiscal quarter.

However, it also told investors that it would work toward reducing its $285 billion cash balance, with the aim of returning it to shareholders, a move that helped boost the stock by more than 2.4% in pre-market trading to indicate an opening bell price of $171.85 each.

Global oil prices were active Friday amid optimism over world demand as manufacturing activity in the world's biggest economies hots up and a report from Reuters news that compliance on output cuts from OPEC members, which are designed to take 1.8 million barrels of oil from the market each day, increased over the month of January.

Brent crude contracts for April delivery, the global benchmark, were seen 0.27% lower from their Thursday close at $69.38 while West Texas Intermediate crude contracts for March were seen 0.3% lower at $65.66 per barrel.


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