Wall Street is heading into Friday in a better mood than it left Thursday. Oil has eased, the chipmakers that took a beating yesterday are clawing some of it back, and US stock futures are pointing higher. The bond market has not joined the party. Ten-year Treasury yields are still near their highest in more than two decades, and one of the world’s biggest bond investors has just said they could reach 6%.
So it is a relief bounce in shares, with a fairly loud warning attached from the people who lend the US government its money. Delta Air Lines has added a reminder of what dear fuel does to real profits.
The Situation Right Now
S&P 500 futures are up about 0.3% and Nasdaq 100 futures roughly 0.7%, while Dow futures are close to flat, according to CNBC data shortly after midday UK time. That follows a soft Thursday, when the S&P 500 fell 0.47% to 7,765.36 and the Nasdaq Composite dropped 1.25% after reports put OpenAI’s annualised revenue well below the figure that had been doing the rounds.
Nerves are calmer. The VIX, Wall Street’s main gauge of expected volatility, is down about 1% to just over 15. Europe is firmer too, with the Stoxx 600 up about 0.7% and the FTSE 100 up around 0.7%.
What Changed Since This Morning?
This morning’s brief argued that Thursday’s solid 30-year Treasury auction bought the bond market a pause, not a pardon. The morning has rather proved it. At breakfast the 10-year yield was around 5.22%. It has since crept back to about 5.25%, a small move but in the wrong direction for anyone hoping the sell-off was over.
Part of that is one interview. Dan Ivascyn, chief investment officer at Pimco, told the Financial Times that the 10-year yield could hit 6% for the first time since 2000, pointing to high oil prices, inflation, America’s debt load and forced selling by hedge funds. He did add that higher yields could tempt buyers back, which would limit how far they go. Since breakfast Delta has also reported, Apple has slipped on a report about iPhone orders and the selling in US telecom shares has carried on.
The Biggest US Market Story
The real story is the gap between shares and bonds. Shares are bouncing because oil has come off the boil, with Brent down more than 1% after President Trump said the US would not attack Iran before next month’s midterm elections, even as the New York Times reported that the Pentagon is preparing a three-day strike option. A promise about timing is not a peace deal, but for now the market is taking it.
Bonds are less convinced. Ray Dalio, the founder of Bridgewater, told CNBC that the cushion protecting shares from rising yields is shrinking. Strong earnings have kept stocks looking better value than bonds, but as yields climb that advantage narrows, and he thinks the bond bear market has further to run as governments and companies compete for the same money. The Federal Reserve is not helping either: Governor Christopher Waller and St Louis Fed President Alberto Musalem both said this week that more rate rises may be needed. A rally in shares with the 10-year above 5.2% still depends on the bond market behaving itself.
Stocks Moving Before The Bell
Delta Air Lines is the headline result. It cut its full-year profit forecast to $5.10 to $5.60 a share, from $6.50 to $7.50 in July, and its finance chief said the cut was all down to fuel, with this year’s bill set to be around $6 billion higher. Third-quarter revenue rose 16% to about $17.6 billion and chief executive Ed Bastian said demand remains strong, with fourth-quarter revenue expected to grow about 20%. The shares were still down around 4% premarket. Passengers are paying up; it just is not enough to cover the cost of filling the tanks.
Apple is down about 2% after Nikkei Asia reported that it has asked suppliers to cut October component orders for the iPhone 18 Pro and Pro Max by 15% to 20%, on softer demand after price rises driven by memory chip costs. Chipmakers are going the other way, with Nvidia, Micron and Taiwan Semiconductor each up about 1.5% after Thursday’s sell-off.
US telecoms are still under pressure after SpaceX agreed to buy a nationwide set of 800 MHz wireless licences. T-Mobile is down about 7.5% before the bell and AT&T and Verizon around 5% to 6%. The biggest gainer is Humana, up about 14% after new Medicare star ratings restored a key contract to four stars, making it eligible for valuable government bonus payments.
FX and the Dollar
The dollar index is flat at about 102.2. Higher US yields and a Fed still talking about rate rises are keeping the dollar supported. Sterling is around $1.32, the euro just above $1.12 and dollar-yen is about 158.3, still close to the levels where Japanese officials have warned they could step in.
Bonds
The US 10-year yield is around 5.25% and the 30-year around 5.62%, both slightly higher on the day, with the 2-year near 4.78%. The 10-year peaked at about 5.36% on Wednesday, its highest since 2002. Thursday’s $22 billion 30-year auction drew solid demand and pulled yields back from those highs, but what has followed looks more like a breather than a reversal.
Europe is calmer. The UK 10-year gilt yield is down about five basis points at around 5.44%, though gilts remain under scrutiny ahead of the Budget on 28 October after Bank of England Governor Andrew Bailey warned that bond markets have become more fragile.
Commodities
Brent crude is around $103 a barrel, down about 1.1%, and WTI is near $90.90, down roughly 0.7%. That is a pullback, not a collapse: Brent is still above $100, and Delta has just shown what that costs. Gold is up about 1.2% at roughly $4,205 an ounce and silver around 1.8% at about $60.50, while copper is up about 1.5%.
Today’s Remaining Catalysts
Canada’s jobs report lands at 13:30 UK time and US cash markets open at 14:30, with Kansas City Fed President Jeffrey Schmid listed to speak around then. The University of Michigan’s preliminary October consumer sentiment survey is due at 15:00, with forecasts around 47.6 from 48.1. Its inflation expectations figures may matter more than the headline, given how jumpy bonds are. Delta’s results call is also at 15:00.
Later, the US government’s monthly crop report is due at 17:00, the Baker Hughes rig count at 18:00 and Boston Fed President Susan Collins speaks at 21:00. Next week brings the first big US bank results of the earnings season and US inflation figures.
Levels Traders Are Watching
On the S&P 500, Thursday’s close at 7,765 and the 7,800 area above it are the obvious reference points. For the 10-year Treasury yield, Wednesday’s high near 5.36% matters on the upside, with 5.20% the area that would suggest bonds are genuinely settling. On Brent, $100 is the level that would need to go for the oil scare to look like it is fading, with Thursday’s high around $105 above. On the dollar, 102.5 on the dollar index and 158 to 160 on dollar-yen are worth watching. These are reference points, not targets.
Where That Leaves Us Into The Bell
Our read is that the bias into the open is cautiously positive, led by the Nasdaq, but it is a bounce on a fragile base. The case for it is real enough: futures are higher, oil has eased, chipmakers are recovering and volatility has dropped back. The case against comes almost entirely from bonds, where yields are close to multi-decade highs, a major investor is openly talking about 6% and Fed officials are still leaning towards higher rates.
Opportunities are likely to sit with companies showing they can pass rising costs on to customers, and with chip names if Thursday’s OpenAI scare keeps fading. The risks are a hot inflation expectations reading in the Michigan survey, a fresh climb in yields or a turn for the worse in the Gulf. The view would change if the 10-year pushed back through 5.36%, which would likely take the shine off any rally, or if Brent climbed back towards Thursday’s highs; a drift in yields towards 5.20% would give the bounce firmer ground. The markets to watch are the 10-year yield, Nasdaq 100 futures, Brent, airline shares and the dollar.
For beginners, the lesson is that shares and bonds can paint very different pictures on the same morning, and when they disagree it usually pays to listen to the bond market. Delta is a neat example of the wider squeeze: strong demand does not guarantee strong profits when costs climb faster. This is an educational view of the market, not advice to buy or sell anything.
If you want to see how you would handle a day like this, when shares, bonds and oil are pulling in different directions, the free Samuel & Co Trading trader assessment is a good place to test your approach.
