U.S. stock futures traded close to unchanged on Wednesday as markets awaited economic data and the Federal Reserve’s Beige Book while assessing higher government bond yields, oil prices and developments involving the United States and Iran.
S&P 500 Futures were flat at 7,637.5 points at 03:20 ET, with Nasdaq 100 Futures unchanged at 29,112 points. Dow Jones Futures were up 0.17% at 52,914 points.
The relatively limited moves followed declines on Wall Street, where the major indexes fell by as much as 1% during the previous session.
Middle East Developments Remain a Factor for Oil Markets
Markets continued to assess developments in the Middle East after the United States conducted another series of strikes against Iran’s Islamic Revolutionary Guard Corps. It was the second U.S. attack on Iran reported during the week.
The United States and Iran have provided different accounts of the status of the Strait of Hormuz. Washington says the waterway remains available to commercial shipping, while Tehran says it is closed.
Developments surrounding the region have coincided with higher oil prices, keeping the potential impact of energy costs on inflation among the factors being considered by investors.
Investors Await Fed Beige Book
Attention is also turning to U.S. economic releases and the Federal Reserve’s Beige Book, which could provide further information about economic conditions, employment and price pressures.
Investors are assessing the balance between persistent inflation and indications of slower economic or labour-market activity when considering the potential direction of interest rates.
Markets are also monitoring the Bank of Canada’s policy communication for information about how another major central bank is responding to inflation and borrowing costs.
Future policy decisions by the Federal Reserve and other central banks will remain dependent on economic data and policymakers’ assessments.
Global Government Bond Yields Continue to Rise
The U.S. 10-year Treasury yield was approaching 5%, putting it near its highest level in three years.
Elsewhere, Australia’s 10-year government bond yield reached its highest level in more than 15 years, while Japan’s equivalent yield was around levels not recorded for approximately 30 years.
Higher bond yields increase the returns available on government debt relative to equities. They can also raise borrowing and refinancing costs for companies and consumers.
In equity valuation models, higher interest rates can increase the discount rate applied to projected corporate cash flows, reducing their calculated present value. This can have a greater effect on some growth and technology companies where a larger proportion of expected earnings is forecast further into the future.
Oil, Interest Rates and Economic Data Remain in Focus
Markets are consequently assessing the interaction between higher oil prices, elevated government bond yields, geopolitical developments and expectations for U.S. monetary policy.
Incoming inflation, employment and broader economic data will provide additional information for investors assessing whether interest rates are likely to remain elevated or whether economic conditions could eventually allow policymakers to adjust their stance.
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