Nasdaq 100 Forecast: NDX pares losses as Treasury steps in to support bond market

US futures        

Dow futures 0.5%, S&P futures 0.33%  & Nasdaq futures  -0.2%

European futures

FTSE 0.15%,  DAX -0.25%

• US stocks mixed after Treasury announcement
• US to double long-dated Treasury repurchases after recent rout
• FOMC minutes will be released at 18:00 GMT
• Oil rises amid continued Middle East supply concerns

U.S. Stocks Mixed as Treasury Yields Fall After Buyback Announcement

U.S. stocks are opening mixed on Wednesday, recovering from yesterday's tech-driven sell-off as government bond yields fall back from multi-year highs following intervention in the Treasury market.

The U.S. Treasury Department announced an increase in its buyback operations for longer-term debt, saying it would double the size of government debt purchases.

The move is aimed at the 10-year to 30-year part of the Treasury market and has helped push long-term yields sharply lower.

The announcement comes after the 30-year Treasury yield rose above 5.33% yesterday, reaching a new 19-year high. It has since fallen back towards 5.20%.

The 10-year Treasury yield has also pulled back from recent highs.

The decline in yields is helping to improve risk sentiment. Yesterday's rise in borrowing costs triggered a sell-off in stocks and other risk assets as investors responded to a combination of higher oil prices, renewed inflation concerns and growing worries over the U.S. fiscal outlook, with government debt approaching $40 trillion.

The key question now is whether the fall in yields can last. If oil prices remain elevated and concerns over U.S. borrowing continue, pressure on the long end of the Treasury curve could return.

Attention now turns to the July FOMC minutes. The minutes relate to a meeting where the Fed left interest rates unchanged at 3.5% to 3.75%, although three officials dissented in favour of a hike.

Following the meeting, Fed Chair Kevin Warsh gave limited guidance on the future path of rates, leaving markets looking for more clues over how policymakers view inflation, financial conditions and the need for further tightening.

Corporate Movers

Moderna surged and Merck rose after a joint personalised cancer vaccine showed positive results in late-stage trials. The shares jumped 57%, while Merck rose around 6%. It remains unclear when Moderna plans to submit the drug for regulatory approval.

Marvell Technology rose more than 11% after announcing that Google had agreed to purchase a $12 billion stake in the company as part of a deal to develop chips for the Alphabet subsidiary.

Lowe's fell 2% after the home improvement retailer lowered its full-year sales and earnings outlook to the bottom end of its previous guidance. Q2 revenue also missed expectations as the company pointed to pressure on home improvement spending.

Target fell 1.5% despite reporting stronger-than-expected Q2 revenue and raising its full-year guidance.

Nasdaq 100 Forecast – Technical Analysis

The Nasdaq 100 recovered from the 27,000 August low before running into resistance around 30,250.

The index has since pulled back but remains above its 50 and 200 EMAs, keeping the longer-term trend constructive. However, the series of lower highs suggests that momentum has started to fade.

Buyers will need to break above 30,250 to create a higher high and bring 30,750 and fresh record highs into focus.

Immediate support can be seen around 29,000, where the 50 EMA and horizontal support converge.

A break below here would expose 28,250, around the July 17 and June lows.

FX Markets – Dollar drops, GBP/USD rises

The U.S. dollar is falling after the Treasury Department said it will double the size of its buyback of long-term U.S. government debt, following the sharp rise in borrowing costs.

EUR/USD is rising on dollar weakness after data confirmed that Eurozone inflation rose to 2.9% in July from 2.8% in June, in line with the preliminary estimate.

Core inflation, excluding food and energy, also increased to 2.5% from 2.4%.

ECB Chief Economist Philip Lane warned yesterday that the war with Iran could keep inflation around 3%, while the El Niño weather event could also push global food inflation higher.

GBP/USD is rising amid a weaker U.S. dollar and after UK inflation accelerated in line with expectations.

UK CPI rose to 2.9% year-on-year in July from 2.6% in June, marking a four-month high. The increase reflected a 13% rise in the price cap for household energy bills, which was partly offset by cheaper motor fuel.

Services inflation, closely watched as a gauge of domestic price pressures, fell to 3.4% from 3.6%.

The softer services inflation reading has helped limit expectations for further Bank of England tightening.

Oil rises to a 3-week high

Oil prices rose to a three-week high on Wednesday as uncertainty over shipping through the Strait of Hormuz keeps supply disruption firmly in focus.

Shipping volumes through the Strait remain well below normal levels, keeping a geopolitical risk premium in the oil price.

President Trump confirmed that no talks were taking place with Iran after the temporary ceasefire agreement expired on Monday.

With diplomatic efforts appearing to have stalled, the market remains focused on whether tensions escalate further or whether a route towards reopening the Strait of Hormuz emerges.

For now, the lack of progress on a diplomatic solution is keeping supply concerns elevated and limiting the downside for oil.