A pause in the bond rout that kicked-off again yesterday, ahead of the policy meeting of the European Central Bank is giving some respite to US equities before the market opens on Wednesday.
The yield on Germany’s 10-year bunds jumped 17 basis points, erasing almost all the gains of the past two weeks, with similar moves seen in the debt of other large European nations including Spain and Italy.
The final opening levels for the Dow Jones Industrial Average and other US equity benchmarks is likely to largely rest on market interpretation of the next move from the ECB.
The central bank’s president Mario Draghi will be looking to walk the tightrope of “back-patting” while also keeping the message that “we will stay the path” in his press conference. Mr Draghi will want to emphasise how well quantitative easing has worked at stoking a rise in inflation without hinting at an early exit to the program. Hints at an early exit from QE could give rise to another massive rally in the euro, which could undo some of the effectiveness of the program.
The rise in oil prices over the past two months could be showing the first signs it is starting to take a bite out of the rally enjoyed by US airline stocks. Delta Airlines (NYSE:DAL) guided lower for the second quarter earnings, blaming lower than expected revenue from domestic business customers, leaving shares down by as much as 2%.
Airlines have been increasing capacity in anticipation that an improving US economy coupled with lower fuel prices will drive increased air travel. Should this increased air travel not happen at the level planned for, airlines could face declining unit revenue or face costs associated with decreasing capacity again.
Futures suggest the:
S&P 500 will open 2 points higher at 2,111 with the
Dow Jones expected to open 25 points higher at 18,036 and the
Nasdaq 100 2 points higher at 4,510.
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