Nasdaq futures and Treasury prices slide on stimulus progress

 Nasdaq futures and Treasury prices slide on stimulus progress

Nasdaq futures sustained a fresh jolt of selling on Monday, signalling further falls for once highflying tech stocks, as bond yields climbed after the Senate passed Joe Biden’s $1.9tn stimulus bill.

Traders pushed Nasdaq 100 futures down around 2 per cent in early European trading, suggesting the tech-focused index could drop further after sliding around 8 per cent over the past three weeks.

Big technology names have tumbled in recent sessions, with electric carmaker Tesla down around 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 0.04 percentage points to above 1.6 per cent. The yield is 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 it reduces the value today of future cash flows. This has a particularly sharp effect on the biggest gainers since the trough last March since many now trade at elevated levels compared with their earnings and revenues expectations.

Monday’s bond market decline comes as after the Senate at the weekend passed Joe Biden’s massive stimulus package, which includes $1,400 payments to many Americans. The measures passed by the Senate represented slightly over 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. The battle royale will continue,” said Jim Reid, research strategist at Deutsche Bank.

In Europe, the region-wide Stoxx 600 index rose 0.6 per cent in early trading, Germany’s Xetra Dax gained 0.5 per cent, while the UK’s FTSE 100 added 0.4 per cent. Markets in China tumbled, pushing the key marker of mainland-traded stocks into “correction” territory.

The yield on Germany’s 10-year Bund edged up 0.01 percentage points to minus 0.29 per cent, while the yield on the UK’s 10-year note rose 0.01 percentage points to 0.77 per cent.

This week, the European Central Bank will hold its regular monetary policy and also 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, adding that he expects the ECB to emphasise its commitment to preserving favourable financing conditions. 

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 have in recent days have indicated the central bank should push back against a sharp rate increase across the bloc.

Elsewhere. the price of commodities continued to rise after a key Saudi Arabian oil site was attacked over the weekend. US marker West Texas Intermediate rose 1.63 per cent to $67.17 a barrel, while international benchmark Brent gained 1.74 per cent to $70.57 a barrel, trading above $70 for the first time since the market tumult following the start of the pandemic.

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