(CercleFinance.com) – Wall Street should open lower on Friday morning, penalized by the rise in bond yields, which is starting to give investors some cold sweats.
Half an hour before the opening, the ‘futures’ contracts on the main New York indices lost between 0.8% and 1%, announcing a start to the session in the red.
The sudden surge in US government bond yields, against a backdrop of expectations of further tightening of monetary policy, has recently pushed long-term rates to record levels, which is worrying market players.
The very offensive declarations of the Federal Reserve concerning inflation have since Wednesday caused a sharp increase in the yields of Treasuries with the longest maturities.
At nearly 3.75%, the US 10-year rate is now at a peak since the 2008 financial crisis.
Fundamentally, a low interest rate environment is seen as favorable for equities, as it promotes abundant liquidity that largely flows into stock markets.
On the contrary, a rise in rates means that investing in sovereign bonds becomes a little more attractive, which leads investors to turn away from the stock market.
Another penalizing factor, the cost of corporate financing can potentially become more expensive with the rise in interest rates.
Due to rate pressures, Goldman Sachs strategists have cut their end-of-year target for the S&P 500 index, which they see ending the year at 3,600 points, representing a further decline of more than 4% compared to current levels.
Some analysts believe, however, that the rise in yields could come to a halt if the Fed’s rate hikes are reduced, which would thus offer some respite to investors.
‘With the reduction in the risk of further rate hikes, the bond market should stabilize, which will have positive effects on other asset classes’, predict the BNP Paribas teams.
In this context, any weaker-than-expected macro-economic indicator should be welcomed, in the sense that it could push the Fed to reduce the wing of its tightening.
The only economic figure of the day, the PMI activity index of S&P Global, which will be published in the morning, will be all the more followed by the participants.
On the other side of the Atlantic, the European equity markets are also falling after the publication of PMI which shows that a next recession is taking shape on the Old Continent.
The Euro Stoxx 50 lost more than 2.1%, the FTSE 100 index dropped 1.9% and the DAX fell 2%.
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