US tech stock futures slide as 10-year yield surges past 1.7% after Fed raises growth and inflation forecasts

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Fed chair Jerome Powell said the central bank was not thinking of cutting back on economic support

US tech stock futures slid on Thursday, as bond yields shot up after the Federal Reserve increased its forecasts for growth and inflation, which sparked some concern among investors that interest rates may rise sooner than expected.

Futures for the tech-heavy Nasdaq 100 fell 0.97% in European trading, while S&P 500 futures slipped 0.35%. Dow Jones futures rose 0.1%, with its more industry-focused firms poised to do well from a strong economic recovery.

The yield on the key 10-year US Treasury note, which moves inversely to prices, jumped 8.9 basis points to 1.73%, its highest since January 2020.

Asian stocks rose overnight after the Fed statement, in which it said it would keep monetary policy supportive for the foreseeable future. China’s CSI 300 climbed 0.8% while Japan’s Nikkei rose 1.01%.

In Europe, the Stoxx 600 index climbed 0.33% and the UK’s FTSE 100 was roughly flat ahead of the Bank of England’s latest interest rate decision.

The US Federal Reserve yesterday increased its growth projection for 2021 to 6.5% from a previous forecast of 4.2%. Unemployment is expected to fall to 4.5% by the end of the year.

It said personal consumption expenditures inflation – its preferred gauge of consumer price pressure – will pick up to 2.4% in 2021, before falling back to 2% in 2022 and rising to 2.1% in 2023.

Overall, Fed officials do not think they’ll have to hike interest rates until at least 2024. But a few officials signaled they were now expecting increases earlier than previously expected.

The Fed’s announcements cooled pressure in the bond market on Wednesday, but the key 10-year yield climbed sharply again on Thursday, as investors reacted to the stronger growth and inflation expectations.

That hit Nasdaq futures hard, with higher returns on bonds making the price and future returns of tech companies look less attractive.

Hugh Gimber, global market strategist at JPMorgan Asset Management, said after the decision, investors are still trying to work out what the Fed’s “tolerance is for higher inflation, what inclusive full employment looks like in practice and how close to these goals the Fed needs to be before it begins to remove accommodation.”

“All of these uncertainties point to the potential for ongoing volatility in bond markets,” Gimber added.

“This may create periodic bouts of instability in risk assets but overall we expect the vaccines, stimulus checks and consumers looking to make up for lost time to… propel stock markets higher by year end,” he said.

Investors’ eyes will be on the Bank of England on Thursday, to see what it makes of rising global bond yields and inflation expectations.

The dollar strengthened as US bond yields rose, with the dollar index increasing by 0.17% to 91.60.

Bitcoin reversed a recent fall to rise around 6% to $58,344. Analysts said the promise of easy monetary policy from the Fed was boosting the price, along with more institutional interest.