U.S. stock futures hold near seven-week highs as bond yields and oil prices stabilize

What’s driving markets

Calmer conditions in energy and bond markets, and the looming catalysts of jobs data and company earnings, are so far discouraging equity investors from making bold bets early on Tuesday.

The S&P 500 index sits at a seven-week high, up 7.4% so far this year, after traders absorbed the prospect of an economic slowdown in the wake of tremors in the banking sector and tighter credit conditions, but prefered to celebrate the lower interest rates that may result.

A jump in oil prices
CL.1,
+0.88%
at the start of the week, following a surprise supply cut by OPEC producers which may add to inflation and thus force central banks to raise interest rates for longer, was counteracted the same day by news of weakening activity in the U.S. manufacturing sector.

“For investors keen to see an end to the monetary tightening environment…U.S. manufacturing activity dipped to its lowest level in almost three years in March, with new orders slumping amid the possibility of further falls if the expected credit tightening from banks washes through,” said Stephen Hunter, head of markets at Interactive Investor.

Treasury yields
TMUBMUSD10Y,
3.466%
though were only a few basis points higher early Tuesday and U.S. crude oil prices up less than a dollar per barrel.

Encouraging investors to sit on their hands is a week shortened for the Good Friday holiday which will close the U.S. stock market, but the March nonfarm payrolls report will still be published on that day and traders will be wary of being badly positioned and not able to immediately react.

Then next week sees the start of the first-quarter corporate earnings season, possibly another reason for caution.

Further dissuading bullish bets is that the S&P 500 is getting near the top of the 3,800 to 4,200 trading range in which it has vacillated for more than five months.

And futures contracts on the index, currently around 4,150, face significant resistance just above the 4,175 level, according to strategists at Saxo Bank.

“So the question is whether U.S. equities will soon lose momentum…the breadth of the market has been quite narrow with mega caps doing the major heavy lifting of indices. This is probably as good as it gets for now in equities as equity valuations are getting stretched as more and more signs are showing that the real estate sector is slowing down dramatically which will impact credit transmission in the economy,” said Saxo.

U.S. economic updates set for release on Tuesday include factory orders and job openings, both for February and both released at 10 a.m. Eastern.

Cleveland Fed President Mester is due to make comments at 6 p.m.