US stocks faced significant pressure on Wednesday, with major indices sliding as a surge in Treasury yields dampened investor sentiment. The Dow Jones Industrial Average experienced its steepest drop in over a month, reflecting growing unease about the economic outlook. The S&P 500 and Nasdaq also extended their losing streaks, as higher borrowing costs and fiscal uncertainties weighed on the markets. Despite the Federal Reserve’s recent rate cuts, the yield on the 10-year Treasury reached new highs, adding to the cautious tone among traders. With mixed economic signals and key data releases on the horizon, investors remain wary of the potential for further market turbulence.

Key Takeaways:

  • Dow Suffers Worst Day Since Early September: The Dow Jones Industrial Average tumbled 409.94 points, or 0.96%, to close at 42,514.95. This marked the index’s steepest single-day decline in over a month as concerns over rising Treasury yields took centre stage. Wednesday’s drop also marked the third consecutive losing session for the blue-chip index, adding to investor anxieties about the outlook for economic growth and market stability.
  • S&P 500 and Nasdaq Extend Losing Streak: The S&P 500 declined 0.92%, ending the session at 5,797.42, while the Nasdaq Composite saw a sharper drop of 1.6%, closing at 18,276.65. This marks the third straight day of losses for both indices, with market sentiment turning increasingly cautious in light of surging bond yields and fears of a broader economic slowdown. The persistent downward pressure on these indices highlights ongoing investor uncertainty as they weigh the potential impact of higher interest rates.
  • 10-Year Treasury Yield Reaches 4.25% High: The benchmark 10-year Treasury yield surged to 4.26% at its session high, reaching levels not seen since July 26. This upward trend in yields reflects growing concerns about the future of the US economy, even as the Federal Reserve implemented a half-point rate cut in September. Market watchers attribute the rising yields to recent economic data, along with worries over increasing fiscal deficits.
  • European Stocks Close Lower Amid Earnings Focus: European markets finished Wednesday’s session in negative territory, as rising US Treasury yields and mixed corporate earnings reports kept investors on edge. The pan-European Stoxx 600 index slipped 0.3%, with the UK’s FTSE 100 down 0.58%, closing at 8,258.64. France’s CAC 40 fell 0.5% to 7,498, while Germany’s DAX declined 0.23%. Deutsche Bank reported better-than-expected earnings but continued to face downward pressure after a German court ruled against it in a legal battle concerning its acquisition of Postbank. 
  • Asia-Pacific Markets Mixed Amid Tokyo Metro IPO Surge: The Asia-Pacific markets presented a mixed picture on Wednesday, diverging from the downward trend seen in Wall Street. Japan’s Nikkei 225 dropped 0.8%, closing at 38,104.86, while the broader Topix index fell 0.55% to 2,636.96. In contrast, South Korea’s Kospi gained 1.12% to close at 2,599.62, lifted by optimism in select sectors. A standout performer in the region was Tokyo Metro, whose shares surged by 45% on their first trading day, following an initial public offering that raised 348.6 billion yen. The IPO was reportedly 15 times oversubscribed, indicating robust investor interest and offering a bright spot in the otherwise cautious regional markets.
  • Oil Prices Drop on Rising US Crude Inventories: Oil prices retreated on Wednesday as data revealed a substantial increase in US crude inventories. Brent crude futures dropped 1.10% to settle at $75.20 per barrel, while West Texas Intermediate (WTI) crude declined 0.98%, ending at $71.04 per barrel. The US Energy Information Administration reported a rise of 5.5 million barrels in crude stocks for the week ending October 18, surpassing market expectations of a 270,000-barrel increase. This unexpected build-up, combined with concerns about potential supply disruptions due to geopolitical tensions in the Middle East, has led to heightened uncertainty in oil markets.
  • Bank of Canada Cuts Rates by 50 Basis Points: The Bank of Canada took a significant step toward easing monetary policy by cutting its key interest rate by 50 basis points, bringing it down to 3.75%. This move aims to support the Canadian economy amid signs of slowing growth, with the central bank forecasting a 1.2% GDP growth rate for 2024. Inflation also cooled, with the rate coming in at 1.6% in September, down from 2% in August. 

FX Today:

  • EUR/USD Attempts Recovery Amid Bearish Trends: EUR/USD edged higher to close at 1.0781, finding support after recent declines. Despite this slight recovery, the pair remains under pressure, unable to break through key resistance at the 50-period SMA of 1.0874. The downward momentum continues, as the 100-period and 200-period SMAs at 1.0947 and 1.1029 keep the outlook bearish. Holding above 1.0780 is crucial for sustaining the current level, with potential targets at 1.0874. A failure to do so could see a return to recent lows, with sellers eyeing 1.0700 as the next key level.
  • GBP/USD Struggles Below 1.3000 as Sellers Dominate: GBP/USD faced strong selling pressure, closing around 1.2925 and remaining below the psychological 1.3000 level. The pair made an attempt to breach the 50-period SMA resistance at 1.3019 but fell short, highlighting persistent bearish momentum. Downward-sloping 100-period and 200-period SMAs at 1.3078 and 1.3157 further reinforce the negative trend. If the pair continues to trade below 1.2925, it could test support at 1.2900, with a possible extension towards 1.2850 if bearish sentiment persists. Conversely, any upward moves would need to break above 1.3019 to signal a potential shift.
  • USD/CHF Trades Flat as Bulls Eye Resistance: USD/CHF hovered near 0.8664, with a narrow trading range reflecting a lack of decisive movement. The pair found resistance close to the 50-period SMA at 0.8669, unable to gain upward traction. Nevertheless, it held steady above its 100-period SMA at 0.8591, suggesting that buyers are still present. A breakout above 0.8669 could pave the way for a test of 0.8700, while a drop below the 100-period SMA might see the pair revisit support near the 200-period SMA at 0.8530, indicating a potential shift in sentiment.
  • NZD/JPY Gains Momentum, Eyes 92.00 Resistance: NZD/JPY gained 0.45% to settle at 91.65, supported by growing bullish sentiment. The Relative Strength Index (RSI) climbed to 60, suggesting increased buying interest. Key support levels are now at 91.50, 91.30, and 91.00, while resistance lies at the critical 92.00 mark, where the 100-day and 200-day SMAs converge. A break above 92.00 could open the way for further gains towards 92.30 and 92.50. However, a failure to maintain this upward momentum might see the pair pull back to support levels, testing the strength of the recent rally.
  • Gold Holds Ground Above Key Support Levels: Gold prices closed around $2,716 after briefly reaching an intraday high of $2,748, facing selling pressure as the session progressed. Despite this, Gold maintained its position above the 50-period SMA at $2,695, showing resilience against a stronger US Dollar. The next upside target lies at $2,748, with a potential extension towards $2,780 if bullish sentiment strengthens. On the downside, key support rests around the 100-period SMA at $2,668, followed by the 200-period SMA at $2,628, which would come into focus if the recent bullish momentum falters.

Market Movers:

  • McDonald’s Sinks After E. Coli Outbreak Reports: McDonald’s (MCD) plunged 5%, leading the Dow’s decline after the US CDC reported a severe E. coli outbreak linked to the company’s Quarter Pounder burgers. The outbreak, which has resulted in 10 hospitalisations and one death, has heightened concerns about potential damage to the fast-food giant’s brand and sales.
  • Northern Trust Surges on Strong Credit Losses Report: Northern Trust (NTRS) soared 7%, making it the top gainer in the S&P 500. The bank reported a provision for credit losses of $8.0 million, significantly below the market’s expectation of $9.99 million. 
  • Volvo Cars Drops After Disappointing Earnings: Volvo Cars faced a 5.9% decline following weaker-than-expected earnings results. The company’s report fell short of market expectations, leading to a significant sell-off. The stock’s poor performance contributed to a broader decline in European markets.
  • Texas Instruments Rises on Earnings Beat: Texas Instruments (TXN) climbed 4%, leading gains in the Nasdaq 100, after the company reported third-quarter earnings of $1.47 per share, beating the consensus estimate of $1.37. 
  • CoStar Group Declines 5.19% on Revenue Miss: CoStar Group (CSGP) fell 5% after the company reported third-quarter revenue of $692.6 million, missing analyst expectations of $696.1 million. The company also lowered its full-year revenue forecast to between $2.72 billion and $2.73 billion, down from a previous range of $2.74 billion to $2.75 billion, which further dampened investor sentiment and put pressure on the stock.
  • Arm Holdings Falls as Qualcomm Deal Hits Snag: Shares of Arm Holdings (ARM) dropped 6.67% after Qualcomm (QCOM) announced the cancellation of a key licensing agreement that had allowed Qualcomm to use Arm’s intellectual property in chip design. The news sparked concerns about the implications for both companies, contributing to broader weakness in the chip sector.

As the day’s trading came to a close, markets remained on edge amid rising Treasury yields and mixed economic signals. The Dow Jones suffered its worst loss since early September, falling over 400 points, while the S&P 500 and Nasdaq continued their downward streaks, highlighting investor unease. The spike in the 10-year Treasury yield to 4.26% weighed heavily on sentiment, as market participants reassessed the impact of sustained higher rates. Despite a few bright spots, such as Northern Trust’s rally on better-than-expected credit provisions and strong earnings from companies like Texas Instruments, broader concerns about economic growth and a potential recession continued to dominate. As European stocks struggled alongside US indices and oil prices slipped on rising crude inventories, all eyes now turn to the Federal Reserve’s next moves and the path of economic data, which could shape the direction of markets in the weeks ahead.