Wall Street Poised For Friday Rebound as VIX Eases, Bond Yields Stall

February 23, 2018

New York (Feb 23)  U.S. stocks are set for solid gains at the opening bell Friday even as investors continue to track developments in government bond markets amid one of the most sustained rises in borrowing costs for three decades.

Futures contracts tied to the Dow Jones Industrial Average were marked 126 points to the upside, indicting an opening bell gain of around 192 points. Contracts linked to the broader S&P 500 seen 11 points higher from Thursday's closing levels.

However, both contracts have weakened throughout the European session and bond market moves as well as the elevated levels of the VIX, the benchmark of near-term equity volatility, are likely to continue to influence both stocks and foreign exchanges markets, particularly following yesterday's 7-year bond auction from the U.S. Treasury, which drew the weakest investor demand since November and the highest yield for that maturity -- 2.839% -- in at least seven years.

The CBOE Volatility Index, better-known as the VIX was marked 6.5% lower in global hours trading at 18.70 after starting the week at around 21.3 points.

Hewlett-Packard Enterprise Co. (HPE - Get Report) shares are set to open at a six-month high after the IT services group posted much stronger-than-expected earnings for its fiscal first quarter and issued a robust outlook, including hefty dividends, under new CEO Antonoi Neri.

HPE said it expects to see bottom line earnings of between 29 cents and 33 cents a share for the three months ending in March, the company said after the close of trading Thursday, well ahead of the Street consensus of 26 cents. It also unveiled plans to boost its dividend by around 50% later this year as part of a broader plan to return around $7 billion to shareholders by the end of its 2019 fiscal year.

More broadly, however, the sustained 8-week rise in U.S. government bond yields, which has taken 10-year notes from 2.4% at the start of the year to 2.91% in overnight Asia trading, is the longest bear market since 1994, according to Bloomberg data, and continues to entice portfolio managers to consider allocating funds to fixed income investments in order to lower risk and generate returns. That said, comments yesterday from St. Louis Fed President James Bullard, who told CNBC Television that the markets might be getting ahead of themselves in assuming four rate hike this year, as well as dovish minutes from the European Central Bank's January policy meeting, allowed stocks in Asia to extend gains seen on Wall Street Thursday, with the MSCI Asia ex-Japan benchmark rising 1.05% into the close of trading and Japan's Nikkei 225 ending the week with a 0.72% gain to close at 21,892.78 points.

In Europe, the Stoxx Europe 600 benchmark, the region's broadest measure of share prices, fell 0.17% by late-morning in Frankfurt despite stronger-than-expected fourth quarter GDP data from Germany and a host of earnings from some of the Continent's biggest companies.

The DAX performance index fell 0.2%, weighed down by financials and industrials, while Britain's FTSE 100 was marked 0.3% to the downside following disappointing market reaction to earnings from state-owned lender RBS plc (RBS) and British Airways parent International Consolidated Airlines Group (ICAGY) .

Global oil markets were also active, although yesterday's mixed set of data from the Energy Information Administration, which showed domestic crude inventories falling by 1.2 million barrels and U.S. crude exports rising to a near record 2 million barrels per day last week allowed for a broadly stable market in Friday trading.

Brent futures contracts for April delivery, the global benchmark, were seen 87 cents per barrel lower from their Thursday close at $65.90 while WTI contracts for the same month, which are more closely-linked to U.S. prices, were 37 cents lower at $62.4 per barrel.


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