US Stock Index Futures Unmoved as Investors Watch Government Bond Yields
U.S. Stock Futures
Investors are keeping a close eye on government bond yields, which maintain recent highs. This has led to concerns that major central banks may keep increasing interest rates. Although U.S. stock index futures were mostly flat on Thursday, megacap stocks led declines, and the S&P 500 and the tech-heavy Nasdaq closed lower on Wednesday.
Interest Rates and Government Bonds
The Bank of Canada’s interest rate hike took markets by surprise, leading to a rise in U.S. bond yields. Thus, the 2-year Treasury yield, which tends to move with short-term rate expectations, increased for the third consecutive day to 4.56%. Investors are now looking ahead to the Federal Reserve meeting next week, as they wonder what direction the bank may be headed.
The Fed Meeting Next Week
Investors see a 70% chance of the U.S. central bank maintaining interest rates at the current range of 5%-5.25% during its policy meeting on June 13-14. The CMEGroup’s Fedwatch tool has the estimate down from nearly 80% a week ago, while the CBOE Volatility index, also known as Wall Street’s fear gauge, edged up after falling to a pre-pandemic level of 13.77 on Wednesday. Although traders see a 50% probability of a rate hike in July, our view is that the Fed will pause in June but leave room for a July hike, keeping it data-dependent.
Market Data and Analysis
Meta Platforms Inc (NASDAQ:META) slid 0.7% after demands from EU industry chief Thierry Breton that the social media giant address online child-sex content immediately. Breton criticized the company’s voluntary child protection program, stating that it wasn’t working. Meanwhile, GameStop Corp (NYSE:GME) shares decreased 18.4% after billionaire investor Ryan Cohen became executive chairman. Cohen’s appointment followed the video game retailer’s decision to dismiss its CEO and post an unexpectedly significant quarterly loss. On the other hand, Lucid Group improved by 2.3% as the U.S. luxury electric vehicle manufacturer’s head of China operations, Zhu Jiang, announced that they are preparing to enter the world’s largest auto market.
Upcoming U.S. Data Releases
On June 13, the first day of the Fed meeting, the U.S. Labor Department will release inflation data. Initial jobless claims data for the week ended June 3 will be available later in the day. Economically sensitive markets, such as the Russell 2000 index of small-cap companies, rose 1.8% on Wednesday to a three-month closing high, demonstrating that investors are transitioning from growth stocks.
Tech Stocks
NASDAQ-listed companies Microsoft Corp (NASDAQ:MSFT), Apple Inc (NASDAQ:AAPL), and Amazon.com Inc (NASDAQ:AMZN) were mostly trending down on Wednesday but up marginally during premarket trading on Thursday.