U.S. Equity Futures Drop on Continued Bond-Market Worries

Markets Dow Jones Newswires

U.S. stock futures moved sharply lower on Thursday, tracking a selloff in European equities where a renewed bout of bond-market chaos lured investors out of riskier assets.

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Futures for the Dow Jones Industrial Average slumped 112 points, or 0.6%, to 17,984, while those for the S&P 500 index dropped 13.25 points, or 0.6%, to 2,102.75. Futures for the Nasdaq 100 index gave up 40.50 points, or 0.9%, to 4,487.

"The overriding factor [behind the selloff] is the European bond-market volatility, which started yesterday afternoon, and we've seen this volatility transpire into the equity market in Europe (http://www.marketwatch.com/storyno-meta-for-guid) this morning and in U.S. futures as well," said Craig Erlam, senior market analyst at Oanda.

"And that all stems from the fact that we've seen higher inflation rates in the eurozone and therefore naturally bond yields have to rise in tandem with them. The reason we've seen so much volatility is because of a lack of liquidity," he added.

On Wednesday, the yield on 10-year German bunds jumped to the highest level in 2015 after European Central Bank President Mario Draghi said investors must get used to periods of higher volatility, and added the ECB won't do anything about it. The ECB also lifted its eurozone inflation forecast to 0.3%, from 0% expected previously, further driving yields higher.

German borrowing costs continued their ascent on Thursday, rising 10 basis points to 0.956%.

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U.S. 10-year Treasury yields rose 3 basis points to 2.4%.

The euro climbed alongside higher bund yields, exchanging hands at $1.1343, up from $1.1276 on Wednesday. Meanwhile, the ICE dollar index dropped 0.6% to 94.868.

Data: Weekly jobless claims due at 8:30 a.m. Eastern Time are forecast to have fallen to 278,000 from 282,000, according to economists polled by MarketWatch.

At the same time, data on U.S. productivity and unit-labor costs data for the first-quarter are on tap.

The reports come ahead of the closely watched nonfarm payrolls report on Friday, which is one of the key indicators the Federal Reserve considers when assessing the best time to hike interest rates.

Also on Thursday, Fed governor Daniel Tarullo appears at the IIF North America Summit in New York at noon Eastern. Tarullo is a voting member of the policy-setting committee.

Erlam noted that apart from the overriding European bond-market story, investors were also watching U.S. data and any clues from the Fed, which he said has become a bit more hawkish.

"We've seen good economic data from the U.S. yesterday with the ADP report, so we're likely to see a strong jobs report tomorrow. And we also have recent comments from [Fed Chairwoman] Janet Yellen that despite the weak winter period, the Fed is still likely to hike rates this year. It's a good support story for the selloff," he said.

Movers and shakers: Shares of Dish Network Corp.(DISH) rallied 6.4% premarket after a report the satellite-TV provider is in talks to merge (http://www.marketwatch.com/story/dish-network-in-merger-talks-with-t-mobile-2015-06-04) with T-Mobile US Inc.(TMUS). T-Mobile shares were 13% higher ahead of the bell.

Ahead of the open, fruit-spreads maker J.M. Smucker Co.(SJM) and telecoms-equipment company Ciena Corp.(CIEN) are slated to report quarterly results.

Other markets: Asian markets ended mixed after a choppy session, with the Shanghai Composite Index turning a more-than-5% loss (http://www.marketwatch.com/story/china-stocks-dive-on-margin-jitters-bond-weakness-2015-06-04) into a 0.8% gain.

Oil futures rose ahead of a highly anticipated OPEC meeting on Friday. Metals were mostly lower. See: What not to expect from OPEC at its meeting (http://www.marketwatch.com/story/what-not-to-expect-from-opec-at-its-friday-meeting-2015-06-03)