U.S. futures appeared to be sliding at the start of the week, with Nasdaq futures down about 2 percent, as concerns about rising Treasury bond yields persisted.
The Dow Jones was down about 80 points and the S&P 500 was down about 30 points. Interest rates on 10-year U.S. Treasury bonds remained near one-year highs at 1.6 percent as the Senate passed President Biden's $1.9 trillion stimulus bill on Saturday and the House of Representatives, where Democrats have a majority, is expected to take it up this week. Investors worry that rising government spending could lead to a spike in debt levels and upward pressure on prices, or inflation. Rising interest rates, in turn, hurt companies whose business relies primarily on easy borrowing and lead to less favorable valuation models for some technology stocks. Emerging technology stocks may be most sensitive to rising interest rates because it reduces the value of future cash flows.
Inflationary pressures may also be impacted by further increases in oil prices. The price of a barrel of WTI crude rose to nearly $68 and Brent surpassed the $70 level for the first time since January 2020. The price spike after the weekend may have come after reports of attacks on oil facilities in eastern Saudi Arabia, including Saudi Aramco's facility at Ras Tanura, a key to oil export. Earlier in the day, oil prices seemed to rise for a fourth straight session after major oil producers decided to keep production unchanged in April and OPEC leader Saudi Arabia said it would maintain a voluntary production cut of an additional 1 million barrels per day for another month.
One of the bigger losers of recent events seems to be the gold market. On Monday morning an ounce was trading around 1700, having earlier fallen to a 9-month low of 1686.4. One of the main reasons for the retreat in gold seems to be the rise in US yields and the strengthening of the US dollar, in which gold is priced in global markets. The stronger the dollar, the more pressure gold may remain under. Rising bond yields could also have a negative impact on gold prices. The Fed, in turn, has no intention of responding to rising yields. Key statements by Federal Reserve officials in the tone of rising interest rates as a response to expected economic growth may seem fully justified.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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