S&P 500 futures ease as Treasury yields hit fresh highs, Tesla results loom

What’s driving markets

The third quarter U.S. corporate earnings season continues to absorb investors, with P&G
PG,
+0.13%,
Morgan Stanley
MS,
+2.03%
and U.S. Bancorp
USB,
+6.96%
among those presenting their numbers before the opening bell on Wall Street, while Netflix
NFLX,
-1.41%,
Tesla
TSLA,
+0.37%
and Lam Research
LRCX,
-0.12%
will feature after the close.

However, investor sentiment has been soured after reports hundreds had died following an explosion at a Gazan hospital raised fears that the Israel/Hamas war would draw in other forces in the region.

Recent hopes that a trip by U.S. President Joe Biden to the Middle East might boost diplomacy have been damped after Jordan cancelled a summit at which Biden was to meet the Jordanian and Egyptian leaders, as well as Mahmoud Abbas, President of the Palestinian Authority.

“Overnight we’ve seen a fresh risk-off tone because of the geopolitical situation, and …that has led to a clear reaction in markets, said Henry Allen, strategist at Deutsche Bank. Concerns about compromised oil supplies from the regions helped push Brent crude
BRN00,
+2.95%
back above $92 a barrel, while gold prices
GC00,
+1.09%
hovered near a one-month high around $1938 an ounce.

Previous upsurges in geopolitical anxiety have seen a rush to perceived haven assets such as U.S. Treasurys, pushing down yields which move in the opposite direction to bond prices.

But the 10-year Treasury yield
BX:TMUBMUSD10Y
on Wednesday touched its highest level since 2007, around 4.87%, as traders continued to express concern about sticky inflation following news released the day before showing U.S. retail sales growing more than expected in September.

“The blistering update on spending could be viewed as a hawkish development and contributed to bearish sentiment in the bond market,” said Stephen Innes, managing partner at SPI Asset Management.

The chances of the Federal Reserve hiking interest rates by another 25 basis points after its December monetary policy meeting have risen to 38% from 26% a week ago, according to CME Group’s FedWatch Tool.

Data from the U.K. on Wednesday showing inflation in September was stuck at 6.7% was further evidence of price pressures in developed economies.

U.S. economic updates set for release on Wednesday include September housing starts and building permits at 8:30 a.m. Eastern, and the Fed Beige Book at 2 p.m.

Fed officials due to make comments include Governor Chris Waller at noon; New York Fed President John Williams at 12:30 p.m.; Richmond Fed President Tom Barkin at 1 p.m.; and Philadelphia Fed President Patrick Harker at 3:15 p.m..