Nasdaq Slump Leads Wall Street Lower As Bond Yields Surge, Energy Crisis Rattles Markets

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Rolling blackouts in China, record high energy prices in Europe and gas line-ups in Britain underscored a troubling power crisis that has Wall Street stocks heading lower Tuesday.

U.S. equity futures slumped lower Tuesday, with tech stocks leading the declines, as government bond yields surged alongside commodity prices amid the extended energy crunch sweeping its way across the world.

Natural Gas prices hit fresh record highs in Europe, trading more than five times the level seen in north American markets, while U.K. Prime Minister Boris Johnson has put British troop on standby as the nation remains gripped by a shortage of gasoline that has left stations without fuel for a third consecutive day.

China, meanwhile, remains hamstrung by rolling blackouts linked to a lack of coal, higher energy prices and tougher emissions standards that have slowed industrial profits for six consecutive months and affected as much as two-thirds of the manufacturing activity in the world’s second largest economy.

The energy price surges have lead to an extended rally in crude markets, as well, which are also elevated by the lowest domestic supplies since 2018 and the disruption in Gulf drilling capacity brought by Hurricane Ida.

WTI futures for November delivery traded 83 cents higher on the session at $76.28 per barrel while Brent contracts for the same month, the global pricing benchmark, were up 62 cents at $80.15 per barrel, the highest since 2018.

In the U.S., a poorly-received auction of $60 billion in 2-year notes yesterday — which drew the weakest demand levels since 2008 amid a plunge in foreign buyers — underscored the risked linked to debt ceiling negotiations and a pending government shutdown and sent yield surging to 18-month highs in overnight trading.

On Wall Street, futures contracts tied to the Dow Jones Industrial Average are indicating a 140 point opening bell slide, with oil and banking stocks providing pre-market support, while those linked to the S&P 500 are priced for a 40 point slump.

Nasdaq Composite futures, which are more sensitive to interest rate increases, are set for a 244 point decline as higher Treasury bond yields surge, taking benchmark 10-year Treasury notes to a January 17 high of 1.544% in overnight trading.

Those levels will surely be in focus as Federal Reserve Chairman Jerome Powell takes questions from the Senate Banking Committee Tuesday, particularly after noting in prepared remarks that inflation pressures and hiring challenges in the world’s biggest economy may be “more enduring than anticipated”.

Ford  (F) – Get Ford Motor Company Report shares were the standout pre-market gainer, rising 3.5% to $14.50 each after the carmaker unveiled plans to build four new U.S.-based manufacturing plants as it accelerates its transition into clean-energy vehicles.

Pfizer  (PFE) – Get Pfizer Inc. Report, meanwhile, was marked 0.6% lower after it submitted data from a late stage trial of its coronavirus vaccine on kids between the age of 5 and 11 to the U.S. Food & Drug Administration

In overseas markets, European stocks fell to a multi-week low, with the Stoxx 600 down 1.55%, as power prices surged and tech stocks slumped. In Asia, a rebound in China stocks failed to lift the region-wide MSCI ex-Japan benchmark into the red, while cautious trading flows boosted the U.S. dollar index to a five week high of 93.65 against a basket of its global peers.  

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