S&P futures are sliding this morning, down 0.4% and tracking the accelerating decline in European and Asian stocks, driven by a move higher in global interest rates, which started with Japanese 10Y yields rising to 0.1% for the first time since February, but mostly Bund yields which spiked after tripping stops, and jumped as high as 0.53% for the first time since early 2016. Oil climbs, dollar and gold slide. Economic data include initial jobless claims, trade balance, Markit PMI readings. Fed representatives are due to speak.
The main story of the otherwise quiet session has been the sharp move higher in bond yields, and particularly German 10y yields, which trended higher ahead of the release of the ECB minutes and large duration supply, extending losses after soft French auction results, and piercing the widely flagged 0.50% support level then rising as high as 0.53%, a 17 month high that saw declines quicken as futures volumes surged.French bonds were squeezed into the auction, before soft demand was seen with 30y bid/cover dropping to 1.53x vs 1.93x prior. Hedging related to the auction appeared to weigh heavily on bunds.
The Bund yield is up 30bps since June 23 low at 23bps, with the German 2/10 curve bear steepening by 5bps tp 112bps. The driver for the sudden weakness was a poor France 30y auction which was met with weak demand as bid/cover drops to 1.53x, tailing 11c. Bund futures volumes surged as stop barrier resistance was taken out and the the widely highlighted 0.50% level broken, with over 18k futures trading in a 1-minute period, the largest volumes of the session. The move above the YTD high level of 0.50% opens up the 200-week moving average at 69bps, according to Bloomberg technical analyst Sejul Gokal.As German bund yields were blowing out, their French peers rose six basis points and those on gilts added four. The yield on 10-year Treasuries rose 4 bps to 2.37%, after falling three basis points Wednesday.
While Germany bore the brunt of the selloff, the move was widespread and has hit virtually every DM:
Equities had a largely quiet session at least until the recent yield fireworks, with MSCI’s index of Asia-Pacific shares ex-Japan closing down 0.1 percent overnight. Japan’s Nikkei slipped 0.5 percent as a stronger yen depressed the outlook for export earnings. Japan’s Topix dropped 0.2 percent and the yen weakened by the same amount. The South Korean won slumped 0.6 percent to the lowest level since March. India’s Sensex advanced 0.5 percent, poised for a record close.
Trading in Asia has been buffeted this week by tensions on the Korean peninsula after North Korea fired a missile, which U.S. officials concluded was an intercontinental ballistic missile, into Japanese waters.
In Europe, a modest early selloff accelerated as US traders walked to their desks, with the Stoxx 600 down 0.7% ahead of the ECB’s minutes. Euro zone blue chips and Britain’s FTSE 100 also hit a day’w los of -0.8%, on track for the biggest drop since May 18.
The other major mover of the session was oil, which clawed back some of its biggest loss in four weeks after data showed U.S. stockpiles declining. Brent oil was at $48.35 a barrel in early European trading as it recovered 1 percent of the 4 percent lost on Wednesday after rising OPEC exports had raised fresh questions about the group’s plans to cut back supply. WTI crude futures rose 1.3 percent to $45.71 a barrel. The contract dropped 4.1 percent Wednesday, the most in four weeks, as Russia was said to oppose any proposal to deepen OPEC-led production cuts.
Gold was off 0.2 percent at $1,224.24 per ounce though it was up from an eight-week low of $1,217.14 it had hit the previous day.
The dollar meanwhile was stalled at 113.32 Japanese yen as it consolidated a near 1 percent gain this week and was also hovering at $1.13495 per euro. The Bloomberg Dollar Spot Index was little changed.
Traders have been wary of making any sudden moves before a flurry of U.S. data later, which includes ADP employment, ISM non-manufacturing PMI and the initial jobless claims report, all of which are appetizers ahead of Friday’s Payrolls numbers.
Focus on Thursday will likely be on minutes from the latest European Central Bank meeting, and on private jobs data in the U.S. Minutes from the Fed showed a lack of consensus about when to shrink the central bank’s $4.5 trillion balance sheet, and how to approach policy strategy in a time of low inflation.
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