T-Note yield hits 4%, hot Eurozone CPI, Salesforce shines – what’s moving markets

(C) Reuters

By Geoffrey Smith

Investing.com — Risk assets are under pressure again as the benchmark 10-year Treasury yield hits 4% for the first time in over three months on fears of sticky inflation and higher interest rates. Analysts warn of another big ECB rate rise in May after core Eurozone inflation accelerates. Salesforce stock jumps after strong guidance but Tesla’s investor day leaves the market cold. The bank that services some of the U.S.’s biggest crypto exchanges warns it could collapse, and oil prices inch higher after digesting another big rise in U.S. stockpiles. Here’s what you need to know in financial markets on Thursday, 2nd March.

1. Hello again, 4% 10-year yield

The yield on the benchmark 10-year Treasury note hit 4% for the first time since November, as fears of sticky inflation and higher-for-longer interest rates cause investors to dump bonds.

The latest leg up in yields followed an ISM manufacturing survey which contained an ugly-looking prices paid component, hidden by an innocuous-looking headline number. It’s the latest in a string of numbers over the last month suggesting that inflation will be harder to bring down than the market hoped at the end of 2022.

Federal Reserve Governor Chris Waller, a noted hawk, may ram home that point in a speech at 16:00 ET (21:00 GMT), while the historically more dovish Neel Kashkari opened the door late on Wednesday to a 50-basis point hike in March, rather than the 25 basis points currently priced in. He speaks again at 18:00 ET.

Initial jobless claims and revised data for fourth-quarter unit labor costs are the only highlights on the data calendar later.

2. Hot Eurozone inflation stokes fears of more ECB rate hikes

Headline inflation in the euro zone eased slightly in February but the core rate rose again, keeping the pressure on the European Central Bank to continue raising interest rates.

Eurostat said consumer prices rose a chunky 0.8% from January, both for the all-items index and for the index that excludes volatile food and energy prices. That left the annual headline rate at 8.5%. down from 8.6% in January. But core inflation – excluding food, energy, alcohol, and tobacco – rose to 5.6% from 5.3%.

With a hike of 50 basis points at the ECB’s next policy meeting already priced in, analysts now say that another 50 basis points is in play at its May meeting. Short-term interest rates now imply the ECB won’t stop hiking until next year, by which time its deposit rate will have risen to 4%.

3. Stocks set to open mixed; Salesforce shines, Tesla weighs

U.S. stock markets are set to open mixed, with higher discount rates hurting long-duration technology stocks particularly hard.

By 06:30 ET, Dow Jones futures were up 54 points or 0.2%, while S&P 500 futures were down 0.4% and Nasdaq 100 futures, which are dominated by the tech sector, were down 0.6%.

Heavyweight Tesla (NASDAQ:TSLA) stock was a drag on the latter two contracts, after its Investor Day passed disappointingly without any news on new models, but with an eye-watering $175 billion for its expansion plans. Anheuser Busch Inbev (EBR:ABI) also fell in Europe after signs of a customer revolt against never-ending price hikes, especially in North America.

Salesforce (NYSE:CRM) stock performed markedly better, rising 15% in premarket after the business software company put out strong guidance for revenue and profit margins in its new fiscal year.

Kroger (NYSE:KR) and Hormel Foods (NYSE:HRL) lead the early line-up of companies reporting, while Broadcom (NASDAQ:AVGO), Costco (NASDAQ:COST), Marvell (NASDAQ:MRVL), Dell (NYSE:DELL) and Hewlett Packard Enterprise (NYSE:HPE) all update after the close.

4. Silvergate sounds the alarm for crypto clients

A crucial part of the U.S.’s cryptocurrency infrastructure is at risk of collapse, under the weight of a depositor run and regulatory investigations into its business.

Silvergate (NYSE:SI), which provides banking services to big crypto exchanges such as Coinbase (NASDAQ:COIN) and Kraken and did the same for FTX’s U.S. operations, said it may not survive as a going concern, as a massive firesale of assets wipes out its capital and leaves it struggling to repay maturing loans. The bank had advances of $4.3B from Federal Home Loan Bank as of the end of last year.

Silvergate stock fell another 33% after the bank said in a filing late on Thursday that it’s still losing money as it liquidates its securities portfolio to meet client withdrawal demands. Those forced sales, which skyrocketed after the collapse of FTX in November, had already driven it to a $1B loss in the fourth quarter.

5. Crude drifts amid signs of growing pressure on Russia

Crude oil prices continued to struggle for direction, with traders still struggling to assess the net impact of disruption to Russian exports of crude and products due to G7 sanctions.

While there’s plenty of data to suggest that Russian oil is still finding its way to world markets – Indian refiners processed a record high amount of crude in February and their Turkish counterparts are also running at record rates – Platts reported that Russia’s seaborne exports of products fell by one-fifth last month as a new EU ban came into force.

Lower oil and gas receipts are putting increasing pressure on Russia’s financial health. The central bank warned of rising financial stability risks on Thursday, while the ruble has fallen by 25% against the dollar since the end of November.

U.S. crude futures were up 0.6% at $78.13 a barrel by 06:45 ET, while Brent was up 0.6% at $84.78 a barrel.