US futures get a boost from Big Tech earnings, but an inflation-driven rise in bond yields keeps investors wary

• US futures edged up, buoyed by optimism over tech earnings, despite a rise in government bond yields.
• Concern about inflation has pushed two-year Treasury yields to their highest since the start of the pandemic.

US stock futures edge higher on Wednesday, after bumper earnings from Big Tech helped offset a sharp rise in government bond yields that reflected investors' expectation of prompt rate rises to stem inflation.

Futures on the S&P 500 and the Dow Jones rose 0.1%, while those on the Nasdaq 100 gained 0.2% in European trading. The benchmark indices hit all-time highs the day before following robust earnings from the likes of Microsoft and Twitter.

Yields on two-year US Treasuries - the most sensitive to investor expectations for interest rates - rose to their highest since the onset of the pandemic in March last year, closing the gap with those on 10-year notes in what is referred to as a flattening of the curve.

Two-year notes were last at 0.507%, up 6 basis points on the day, set for their biggest monthly gain since November 2016, while 10-year notes were yielding 1.622%, bringing the spread between the two to its narrowest in two months.

"It should be obvious by now that the market's centre of attention is on the (perceived) need for central banks to get ahead of the rise in inflation," ING head of Americas regional research Padraig Garvey said.

"What is clear is that front-end rates are now the most important part of any yields curve. They are the proverbial tail wagging the dog: when hike conviction increases, the long-end tends to flatten, and vice versa," he said.

Inflation has roared higher around the world, with the price of everything from basic foodstuff and utility bills to key raw materials soaring to multi-year or even record highs, as global activity has snapped back after the worst of the pandemic.

In Europe, traders were waiting for the UK government's autumn budget, due later on Wednesday, and the outcome of a European Central Bank policy meeting on Thursday. UK Chancellor Rishi Sunak is widely expected to unveil a raft of new spending measures.

"Increases to public sector pay, a huge cash injection for the NHS, investment in regional transport, skills, housing, and education, along with a freeze to fuel duty, however the devil will be in the detail, in terms of how much it is all likely to cost," CMC Markets chief markets strategist Michael Hewson said.

The FTSE 100 was barely changed, down 0.1% on the day, while the pound was down around 0.1% against both the dollar and the euro. Elsewhere across the markets, the pan-European Stoxx 600 eased by 0.2%, having touched three-month highs the previous day, while in Asia, the Shanghai Composite fell 1.0% and the Hang Seng dropped 1.7%, dragged down by persistent concerns about the beleaguered property sector.

In the cryptocurrency sector, dogecoin spin-off Shiba Inu rocketed up by more than 30% to new record highs above $0.00005940, after hundreds of thousands of Robinhood users petitioned the trading app to add the token to its offering. Bitcoin, meanwhile, was last down 3.2% at around $60,400, down around 10.5% from a record near $67,000 a week ago.

Read more: Two of the world's largest asset managers are divided on the prospect of 1970s-style stagflation - here's why BlackRock and Deutsche Bank disagree and how retail investors can navigate the potential combination of high inflation and weak growth