Dow Jones futures rise as treasury yields, oil prices ease
- US Treasury yields pulled back from multi-year highs, easing pressure on equity markets and driving futures gains.
- Dropping oil prices helped relieve risk aversion, supported by US-Iran negotiations regarding the Strait of Hormuz.
- Investors remain cautious as strong economic data pushed expectations for an October Fed rate hike to nearly 71%.
Dow Jones futures gain by 0.14% to trade near 51,790 during European hours on Friday. Meanwhile, S&P 500 futures rise by 0.33% to trade around 7,780, while Nasdaq 100 futures advance 0.34% to trade near 30,870.
US stock futures gain as Treasury yields eased following a sharp surge on Thursday that pushed yields to multi-year highs. The 30-year US Treasury yield climbed to 5.502%, reaching its highest level since June 2004, while the benchmark 10-year Treasury yield rose to 5.225%, hitting a mark not seen since June 2007. A retreat in oil prices further helped reduce risk aversion, supported by discussions between the US and Iran regarding a phased deal aimed at reopening the Strait of Hormuz and lifting the US blockade on Iranian ports.
In regular US trading on Thursday, major indices saw muted performances, with the Dow Jones slipping 0.31% and both the S&P 500 and Nasdaq Composite finishing largely unchanged. Overall market sentiment remains cautious due to hawkish signals from Federal Reserve officials. Strong US economic data has stoked renewed inflation concerns, bolstering expectations that the central bank could tighten monetary policy further in its upcoming meetings.
The CME FedWatch Tool now indicates that the likelihood of an October benchmark rate hike has risen to nearly 71%. This marks a sharp increase from 57.6% a week prior and just 9.7% a month ago. With no major corporate earnings releases scheduled for the day, investors are turning their attention to upcoming economic indicators, including Friday's release of the University of Michigan consumer sentiment report and durable goods data.
Strategists at OCBC caution that Asian currencies are likely to remain under pressure in the near term, with "elevated oil prices and US Treasury yields" expected to "continue to weigh on Asian FX, in differentiated magnitude." They add that thinner liquidity conditions into the weekend mean that "moves [could] turn choppier," potentially amplifying volatility across the regional complex.
Dow Jones FAQs
The Dow Jones Industrial Average, one of the oldest stock market indices in the world, is compiled of the 30 most traded stocks in the US. The index is price-weighted rather than weighted by capitalization. It is calculated by summing the prices of the constituent stocks and dividing them by a factor, currently 0.152. The index was founded by Charles Dow, who also founded the Wall Street Journal. In later years it has been criticized for not being broadly representative enough because it only tracks 30 conglomerates, unlike broader indices such as the S&P 500.
Many different factors drive the Dow Jones Industrial Average (DJIA). The aggregate performance of the component companies revealed in quarterly company earnings reports is the main one. US and global macroeconomic data also contributes as it impacts on investor sentiment. The level of interest rates, set by the Federal Reserve (Fed), also influences the DJIA as it affects the cost of credit, on which many corporations are heavily reliant. Therefore, inflation can be a major driver as well as other metrics which impact the Fed decisions.
Dow Theory is a method for identifying the primary trend of the stock market developed by Charles Dow. A key step is to compare the direction of the Dow Jones Industrial Average (DJIA) and the Dow Jones Transportation Average (DJTA) and only follow trends where both are moving in the same direction. Volume is a confirmatory criteria. The theory uses elements of peak and trough analysis. Dow’s theory posits three trend phases: accumulation, when smart money starts buying or selling; public participation, when the wider public joins in; and distribution, when the smart money exits.
There are a number of ways to trade the DJIA. One is to use ETFs which allow investors to trade the DJIA as a single security, rather than having to buy shares in all 30 constituent companies. A leading example is the SPDR Dow Jones Industrial Average ETF (DIA). DJIA futures contracts enable traders to speculate on the future value of the index and Options provide the right, but not the obligation, to buy or sell the index at a predetermined price in the future. Mutual funds enable investors to buy a share of a diversified portfolio of DJIA stocks thus providing exposure to the overall index.
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