US pre-open: Stocks seen lower as bond yields remain elevated; oil prices in focus
US futures pointed to a lower open on Thursday, with investors likely to keep a close eye on still-elevated bond yields and trade talks with China.
At 1225 BST, Dow Jones Industrial Average futures were down 0.1%, while S&P 500 and Nasdaq futures were 0.2% and 0.4% weaker, respectively.
Elsewhere, oil prices were in focus as Brent crude hit $80 a barrel for the first time since 2014 after France's Total threatened to withdraw from its large Iran gas field deal following the US decision to exit the Iran nuclear deal.
David Morrison, chief market strategist at GKFX, said: "US stock index futures were a tad softer ahead of the open, although the broad-based US-focused Russell 2000 remained within a few points of the all-time record close posted on Wednesday.
"Traders are keeping a close eye on oil prices, the dollar and US Treasury bonds. So far, higher crude prices, a rising dollar and the sharp pick-up in bond yields have all been shrugged off by equities which continue to push higher, recovering from the sharp sell-off seen at the beginning of February. Equities have been supported by a strong US earnings season while higher oil prices have given the energy sector an extra lift.
"However, now that the first quarter earnings season is drawing to a close, some market participants are worried that the stronger dollar and ongoing rally in oil prices may become a headwind for US equities going forward. At the same time, the yield on the 10-year Treasury is now bedding in above 3.0%. This can be viewed as a positive if accompanied by stronger US growth. But there are signs that this may have peaked while inflation is picking up. If so, then we may see a move out of equities, particularly if volatility spikes higher again."
The US and China were set to begin a second round of talks aimed at averting a trade war.
"Interestingly though, Peter Navarro won’t be the US key negotiator; instead, Steven Mnuchin, Wilbur Ross, and Robert Lighthizer will take the lead," said Hussein Sayed, chief market strategist at FXTM. "President Trump seems to have changed course with China, first in his attempt to save ZTE, and now by side-lining Peter Navarro. It's still difficult to predict how the negotiations will end, but we’ll surely be in a better position compared to a few months ago."
Meanwhile, in bond markets, the yield on the 10-year Treasury note remained high at 3.11%, having risen to a seven-year peak a day earlier.
In corporate news, Cisco Systems was likely to be in focus after the company's quarterly services revenue missed expectations late on Wednesday.
Video game publisher Take-Two Interactive looked set for a down day after its quarterly results late on Wednesday, as revenue forecast fell short of analysts' expectations.
Walmart edged higher following the release of its first-quarter results, but Childrens Place was 5% lower after its quarterly numbers.
Elsewhere, Williams Cos gained after announcing that it would buy the remaining 26% stake that it does not already own in its master limited partnership, William Partners LP, for $10.5bn.
JC Penney is still due to report before the opening bell, while Applied Materials and Nordstrom will release their numbers after the close of markets.
On the data front, initial jobless claims are at 1330 BST, along with the Philadelphia Fed manufacturing survey. The Philly Fed index is expected to have ticked down to 21 in May from 23.2 the month before, while initial jobless claims are expected to have risen to 215,000 last week from 211,000.