Dow futures fell more than 200 points, indicating a drop on Thursday, as Treasury yields push back to cyclical highs

What drives the market?

Traders’ risk appetite continued to be disrupted by concerns that the Federal Reserve’s desire to combat rampant inflation with still higher borrowing costs would hurt economic activity and dampen revenues. enterprise import.

Policy-sensitive 2-year Treasury yields
BX: TMUBMUSD02Y

on Tuesday, was above 4.3%, near the highest level since 2007. The short-term benchmark was nearly 400 basis points lower a year before the Fed began its rate hike campaign to tackle rising pepper prices. Usage is happening at the fastest rate in 40-years. 10-year Treasury yield
BX: TMUBMUSD10Y

in a short time increased to over 4% in the initial transaction.

JPMorgan Chase
JPM

CEO Jamie Dimon has warned additional rate hikes will be particularly painful, and S&P 500 could drop another 20%. So far, the benchmark is down 24.2% in 2022. The tech-heavy Nasdaq Composite is down 32.6% over the same period and at its lowest level since July 2020.

“With US 10-year yields back at 4% this morning, we expect pressure to continue on US equities and our thesis is that the upcoming third quarter earnings season begins. Starting this week will lead to a drop in earnings and disappointment in the outlook. ,” said Peter Ganry, head of equity strategy at Saxo Bank.

Dimon’s banking on Friday will help kick off third-quarter corporate earnings season alongside peers Citigroup
OLD

and Morgan Stanley
TEACHER.

Analysts expect total S&P 500 earnings to grow 4.5% over the period, though much of this is driven by an expected 6.3% gain for energy stocks. , according to Refinitiv. Financial income is forecast to decline 1.6%.

Markets face US producer price data on Wednesday and consumer price data on Thursday, reports that will further impact investors’ thoughts on the Fed’s policy trajectory.

“Holding the dollar long and risking short continues to be heard in almost every market discussion,” said Stephen Innes, managing partner at SPI Management.

Dollar
DXY

has been pushed higher by the Fed’s relatively aggressive rate hike cycle, and the currency’s strength is seen as another headwind to US multinational earnings.

Indeed, a strong greenback is often seen as a sign of tensions elsewhere, like Hang Seng
HK: HSI

fell below 17,000 for the first time since 2011. “The cycle sensitive semiconductor sector is under pressure, facing difficulties due to higher productivity, oversupply and control measures. U.S. exports,” Innes said.