Tuesday, June 15, 2021
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Nasdaq futures and Treasury prices slide on stimulus progress

Nasdaq futures sustained another jolt of selling on Monday, signalling further falls for once high-flying tech stocks, while bond yields climbed after the Senate passed Joe Biden’s $1.9tn stimulus bill.

Futures trading for the top 100 companies of the Nasdaq pointed to the index diving 1.6 per cent when Wall Street opens later, adding to an 8 per cent slide for the tech-heavy index during the past three weeks.

Big tech names have tumbled in recent sessions, with electric carmaker Tesla down about a third from the peak it hit in February and Cathie Wood’s high-profile Ark Innovation ETF also sinking into a bear market.

The market volatility has come as rising expectations for economic growth and inflation have sparked a sharp sell-off in US government debt. The selling continued on Monday, with the yield on the benchmark 10-year Treasury rising 0.05 percentage points to above 1.60 per cent — close to its highest level in a year after starting 2021 near 0.9 per cent.

Higher borrowing costs are typically considered to be bearish for expensive portions of the equity market because they reduce the value of future cash flows. This has had a particularly sharp effect on the biggest gainers since the trough last March as many now trade at elevated levels compared with their earnings and revenues expectations.

Monday’s bond market decline comes after the Senate at the weekend passed the US president’s huge stimulus package, which includes $1,400 payments to many Americans. The measures passed by the upper chamber represented slightly more than 8 per cent of US economic output, according to Goldman Sachs.

“If it does make it through the House relatively unscathed then you may see another round of US growth upgrades and probably more concerns about yields and inflation,” said Jim Reid, research strategist at Deutsche Bank. “The battle royale will continue.”

In Europe, the region-wide Stoxx 600 index was up 0.9 per cent, Germany’s Xetra Dax gained 1.3 per cent, while the UK’s FTSE 100 added 0.1 per cent. But in China stocks tumbled, pushing the CSI 300 into “correction” territory after the index of Shanghai and Shenzhen-listed shares closed down 3.5 per cent. Hong Kong’s Hang Seng sank 1.9 per cent.

The European Central Bank will this week hold its regular monetary policy meeting, where it will discuss whether the “recent rise in bond yields is proportional to the improving global economic prospects or an unwelcoming tightening of financial conditions”, said Reid. 

The yield on Germany’s 10-year Bund edged up 0.02 percentage points to minus 0.29 per cent, while the yield on the equivalent UK gilt was flat 0.76 per cent.

Data set to be released later on Monday on the central bank’s bond-buying programme will give traders a clue of the action the ECB might take to tame the rise in eurozone interest rates.

Marco Valli, head of macro research at UniCredit, said showing at least a small increase in bond buying would be an important “credibility issue” since several senior policymakers in recent days had indicated that the central bank should push back against a sharp rate increase across the bloc.

Elsewhere, the price of commodities continued to rise after a main Saudi Arabian oil site was attacked over the weekend.

US marker West Texas Intermediate rose 1.63 per cent to $67.17 a barrel, but later stabilised at $65.83. International benchmark Brent traded above $70 for the first time since the market tumult following the start of the pandemic, but pared its gains to $69.20.

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