US bond yields hit their highest level since the Great Financial Crisis on fears of rising inflation and further interest rate hikes. UK bonds are under attack again as government borrowing rises due to interest rate rises and benefit costs. Snap shares fell a quarter in the premarket after posting a disappointing earnings forecast, and Twitter shares fell after a report that Elon Musk may have mouthed off about his rejection of a buyout deal for the company. In Europe, gas prices fell nearly 10% after Germany dropped its opposition to the EU’s price cap mechanism. Here’s what you need to know about financial market conditions on Friday, October 21.

1. Bond yields hit 15-year high on rate hike fears

U.S. bond yields hit their highest level since the Great Financial Crisis amid fears of rising inflation and further rate hikes by the U.S. Federal Reserve.

By 06:15 Eastern Time (10:15 GMT), the yield on 10-year Treasuries stood at 4.28%, just below a 15-year high. It has risen more than a quarter point this week alone as investors are increasingly factoring in speculation that the Fed will take longer than expected to bring inflation down. The market currently believes the Fed Funds rate will top 5% next year, while a number of Fed officials have warned not to expect a rate cut anytime soon.

On Thursday, Fed Governor Lisa Cook warned that inflation remains “stubbornly and unacceptably high,” hours after data on an unexpected drop in initial jobless claims underscored tightness in the labor market.

FRB New York Governor John Williams will speak at 09:10 ET (13:10 GMT).


2. UK slips into recession

The UK economy is rapidly slipping into recession, which has led to a rapid deterioration in the public finances. Retail sales fell for the second month in a row in September, perhaps slightly exaggerated by the death of Queen Elizabeth II and the subsequent period of mourning.

More worrying, however, was the sharp rise in public sector borrowing last month to just under £20 billion. This was driven by large increases in interest payments on inflation-linked debt and energy subsidies to households – 2 things that are likely to characterize the next 6 months.

These figures come after a day of chaos in Westminster when peers ousted Liz Truss as Prime Minister after just 6 weeks. Any hopes of a quick return to normality are tempered by reports that Boris Johnson, who himself was disgracefully removed from office earlier this year, is preparing his comeback.

3- U.S. stock market to open lower amid bond market slump; Snap falls

U.S. stock indexes will open slightly lower later in the day as sentiment has deteriorated due to a steady rise in bond yields, which raises the cost of capital and therefore reduces profit margins for all listed companies.

By 06:20 ET, the Dow Jones futures were down 150 points, or 0.5%, the S&P 500 futures were down 0.7% and the Nasdaq 100 futures were down 0.9%. They will end the week slightly higher, though still within a downtrend that has been dragging since January.

Among the stocks likely to be in focus will be Snap, which lost a quarter of its value after the company said it expects revenue to stagnate in the current quarter as advertisers cut spending. The news cast doubt on the company’s ability to turn a profit. Snap shares were trading at their lowest level in nearly four years on the premarket.

Whirlpool is also in trouble amid a slump in the consumer durables market, and railroad stocks are still in demand after reports from CSX and Union Pacific. Verizon, Schlumberger and American Express lead Friday’s earnings reports. European giants L’Oreal and Adidas disappointed with their reports the day before.

4. Germany gives in to EU pressure over gas cap issue

Germany has finally yielded to EU pressure to impose a price cap on gas prices this winter. Chancellor Olaf Scholz dropped his opposition to the plans in a 10-hour meeting with other leaders that will continue today with discussions on the broader economy and the situation in Ukraine.

Berlin had resisted the EU’s initial plans to cap wholesale market prices, fearing it would lead to major suppliers leaving the market, an unacceptable risk given that Russia has already imposed a de facto ban on supplies.

Benchmark natural gas prices in Europe fell nearly 10% in response to the news. The cap-and-trade mechanism is now well positioned to be finalized at Tuesday’s meeting of energy ministers.

5. Twitter fell amid reports of national security scrutiny of Musk’s ransomware buyout

Twitter shares fell more than 8% in the premarket after Bloomberg reported that the Biden administration is considering vetting Ilon Musk’s bid to buy the company for national security purposes, after the Tesla CEO used the platform to make some explicitly pro-Russian comments in recent weeks.

Musk has said that Crimea should be assigned to Russia as it was historically part of the Russian Empire and suggested that referendums should be held again.

Musk is also reportedly planning to fire three-quarters of Twitter’s employees if his purchase offer is successful.