Rising treasury yields weigh heavily on US markets

Another solid performance from AI darling Nvidia was not enough as stocks were broadly lower on Wednesday with Treasury yields continuing to edge higher on the return of concerns around sticky inflation and Fed rate cut timing.

The Dow Jones closed 1.06 per cent lower, the S&P 500 fell 0.74 per cent its first negative session of the last three. The Nasdaq finished 0.58 per cent lower on the day with Nvidia helping to limit the Tech indexes decline.

While the start to this week has been mixed, all three major indexes remain on track to post solid gains for the month of May with the S&P 500 currently up 4.6 per cent for the month, the Dow up 1.7 per cent and the Tech heavy Nasdaq surging more than 8 per cent in May.

After opening lower and briefly pulling back up to 2.6 per cent, Nvidia reversed the early losses to finish 0.8 per cent higher. The megacap is now up over 20 per cent since its earnings report last week.

The key market driver on the day was US bond yields which continued to move higher for a second consecutive day following further weak demand at new Govt debt auctions. The US sold US$44 billion of seven-year notes at 4.650 per cent — above the pre-auction level of 4.637 per cent, Bloomberg reported. This follows yesterday’s Treasury offerings totalling US$139bn which also saw softer than expected demand.

The rising yields is a clear indication that investors and traders have lowered their expectations for Federal Reserve rate cuts. Fed funds futures trading data suggests a nearly 54 per cent chance that rates will hold steady in September, according to the CME FedWatch Tool.

On the M&A front, BHP has declined to make a firm offer for Anglo American walking away from what would have been the biggest mining deal in over a decade. With less than one hour before the deadline BHP confirmed it had not been able to reach an agreement to secure the backing of Anglo’s board and so would not proceed. BHP must now walk away for at least six months as a result.

In the energy sector, shares of Marathon Oil jumped more than 8 per cent on Wednesday after the announcement that ConocoPhillips has agreed to buy the smaller energy company in an all-stock deal. ConocoPhillips agreed to acquire Marathon Oil in an all-stock deal valuing the company at about US $17 billion, extending a major buying spree among the largest players in the US oil and gas industry.

Turning to US sectors, all sectors finished in the red with the worst performer being Energy which finished down 1.76 per cent, followed by Industrials and Materials which both finished 1.42 per cent lower.

In European news, Sterling reached a 21-month high against the euro in European markets due to ongoing inflationary pressures in the UK. Investors are delaying expectations of Bank of England rate cuts compared to the Eurozone.

Orange juice prices have hit record highs due to adverse weather conditions and disease in Brazil, the top global exporter. Manufacturers are considering using mandarins as an alternative. The surge began in late 2022 after hurricanes and cold snaps damaged orange groves in Florida, the US's main growing region. The rally intensified this month with fears of a poor harvest in Brazil.

Futures

The SPI futures are pointing to a 0.7 per cent fall.

Currency

One Australian dollar at 7.30am was buying 66.09 US cents.

Commodities

Gold has lost 0.64 per cent. Silver has added 0.73 per cent. Copper has lost 1.32 per cent. Oil has fallen 0.75 per cent.

Figures around the globe

European markets closed lower. London’s FTSE fell 0.86 per cent, Frankfurt lost 1.10 per cent, and Paris closed 1.52 per cent lower.

Turning to Asian markets, Tokyo’s Nikkei fell 0.77 per cent, Hong Kong’s Hang Seng lost 1.83 per cent while China’s Shanghai Composite closed 0.05 per cent higher.

Yesterday, the Australian share market closed 1.30 per cent lower at 7,665.63.

Ex-dividends
Gryphon Capital (ASX:GCI) is paying 1.49 cents unfranked
Kkr Credit Inc Fund (ASX:KKC) is paying 1.67 cents unfranked
Perpetual Cred Trust (ASX:PCI) is paying 0.7307 cents unfranked
360 Capital Mortgage (ASX:TCF) is paying 3.5 cents unfranked
Technology One (ASX:TNE) is paying 5.08 cents 65 per cent franked

Dividends payable
Unibail-Rodamco-Westfield (ASX:URW)

Sources: Bloomberg, FactSet, IRESS, TradingView, UBS, Bourse Data, Trading Economics, CoinMarketCap.
Disclaimer

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