Futures Dip After Report Trump Mulls Economic Emergency; Treasury Yields Stand Tall

By Johann M Cherian and Sukriti Gupta

(Reuters) - U.S. stock index futures saw a decline in volatile trading on Wednesday as investors reacted to a CNN report. The report suggested that President-elect Donald Trump is considering declaring a national economic emergency.

As of 7:34 a.m., the Dow E-minis were down 119 points, which represents a 0.28% drop, S&P E-minis were down 26.25 points, or 0.44%, and Nasdaq E-minis decreased by 134.5 points, amounting to a 0.63% decline.

These futures lost early gains following the revelation that such a declaration could enable Trump to initiate a new tariff program. This would be possible under the International Economic Emergency Powers Act, giving the President the authority to handle imports during a national emergency.

Concerns have been growing among investors regarding potential surcharges on trade with U.S. partners. There are fears that Trump's proposed policies, including mass deportations and tariffs, could lead to a global trade war and increase inflation.

Additional pressure on equities is likely coming from rising Treasury yields, with the yield on the benchmark 10-year Treasury bond reaching 4.7%. This is the highest level in eight months, occurring at a time when stock valuations appear to be high.

Attention now shifts to the upcoming ADP National Employment Report for December and weekly jobless claims data, both of which are to be released before markets open. Additionally, comments from Fed Governor Christopher Waller will be closely monitored.

This data may provide critical insights ahead of Friday's important non-farm payrolls report.

Minutes from the Federal Reserve's December meeting are expected at 2:00 p.m. ET and may offer further clarity on the central bank's monetary policy for the current year.

Achilleas Georgolopoulos, a market analyst at brokerage XM, noted, "It would be interesting to see how concerned Fed members really are about the inflation outlook, potentially justifying the significant revisions in the December (Personal Expenditure) inflation projections, and whether the December rate cut was a compromise between the hawks and doves ahead of Trump's second presidency."

In the previous trading session, Wall Street's main indexes closed lower. The benchmark S&P 500 and the tech-heavy Nasdaq recorded their largest declines since the Fed's meeting in December when the central bank maintained a cautious approach toward future interest rate cuts.

The markets dropped after data indicated a strong labor market and positive services activity. This led investors to adjust their expectations for the Fed’s first rate cut, now projected for June, after which rates are anticipated to remain unchanged for the rest of the year, according to the CME Group's (NASDAQ:) FedWatch Tool.

Political developments are also at the forefront of investors' minds as they prepare for potential policy changes following Trump's inauguration later this month.

Among notable premarket movers, Advanced Micro Devices (NASDAQ:) experienced a decrease of 2.6% after HSBC downgraded its stock from "buy" to "reduce."

In the quantum-computing sector, stocks like Rigetti Computing fell 22%, IonQ lost 13.6%, and Quantum Computing dropped 25.3% after Nvidia (NASDAQ:) CEO Jensen Huang suggested that practical quantum computers may be over 30 years away.

On a positive note, Tapestry (NYSE:) rose by 1.2% following an upgrade from Barclays, moving from "equal weight" to "overweight."

Looking ahead, quarterly earnings reports are on the horizon, with major banks such as JPMorgan Chase & Co (NYSE:) and Wells Fargo (NYSE:) set to initiate the earnings season next week.

It's also important to note that markets will be closed on Thursday in observance of a national day of mourning for former President Jimmy Carter.

Futures, Treasury, Economy