Dow Futures Slip Lower, Treasury Yields Ease Ahead of Fed Minutes

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The Wednesday Market Minute

  • Global stocks mixed as military tensions in Asia keep gains in check, while improving vaccine rollouts and economic data power European and U.S. markets higher.
  • IMF boosts global growth forecast to 6%, the highest since 1976, while U.S. data continues to indicate a stronger-than-expected post-pandemic rebound.
  • Benchmark 10-year note yields fall to a 2-week low ahead of today’s March Fed minutes, with traders eyeing any statements on inflation and ‘dot plot’ changes. 
  • CDC data shows 63 million Americans have now been fully vaccinated against the coronavirus, with around 169 million doses administered as of Tuesday.
  • U.S. equity futures suggest a modestly softer open on Wall Street ahead of minutes from the Fed’s March meeting at 2:00 pm Eastern time.

U.S. equity futures edged lower Wednesday, amid some of the lowest premarket trading volumes of the year, as investors continue to track Treasury bond yields ahead of the release of minutes from the Federal Reserve’s last policy meeting and buoyant economic data from around the world. 

Benchmark 10-year Treasury notes yields slipped to a two-week low of 1.645% in overnight trading, while the CME Group’s FedWatch tool continues to indicate little chance of a rate hike later this year, even as the International Monetary Fund predicts the fastest pace of global growth — 6% — since 1976 and U.S. and European readings of economic activity indicate record high factory output and roaring services sectors. 

If minutes from the Fed’s March meeting show consistent messaging on both inflation, which Chairman Jerome Powell and his colleagues have insisted will be transitory, and repeat their pledges to keep interest rates at near zero percent for at least the next two years, the current bond market rally could entice another leg-up in U.S. stocks, which are already hovering at all-time highs amid expectations of a robust earnings recovery and improving post-pandemic fundamentals.

Refinitiv data suggests the first quarter earnings season, which kicks-off next week with updates from JPMorgan  (JPM) – Get Report, Citigroup  (C) – Get Report, Goldman Sachs  (GS) – Get Report and Wells Fargo  (WFC) – Get Report, will show S&P 500 profits for the three months ending in March rising more than 24% last year to a share-weighted $336.5 billion.

Stocks look set for a muted open, however, with futures contracts tied to the Dow Jones Industrial Average indicating a modest 50 point decline and those linked to the S&P 500, which is up 2.5% for the month, priced for a 6 point dip. Nasdaq Composite futures, meanwhile, are indicating a 20 point move to the downside.

The U.S. dollar index, which tracks the greenback against a basket of six global currencies, was marked 0.7% into the red at 92.269, the lowest in two weeks, while 2-year note yields slipped to 0.157%. 

Oil prices were also modestly lower on the session, despite the weaker dollar, as OPEC’s decision to gradually increase production in the coming months offset data from the American Petroleum Institute showing a surprise 2.6 million barrel reduction in domestic crude stocks. 

WTI contracts for May delivery were marked 42 cents lower on the session at $58.91 per barrel while Brent contracts for June, the global benchmark, slipped 40 cents to trade at $62.36 per barrel.

In Europe, stocks tested recent record highs following a stronger-than-expected reading of factory and services activity for the month of March, although a big jump in output prices kept concerns for near-term inflation on the boil.

Improving vaccine rollouts, particularly in the United Kingdom, where the Moderna  (MRNA) – Get Report dose will begin distribution this week, added to the positive sentiment, with the Stoxx 600 rising 0.05% and Britain’s FTSE 100 jumping 0.75%.

Overnight in Asia, increasing political and military tensions between China and Taiwan kept stocks in the red for most of the session, with the MSCI ex-Japan benchmark falling 0.24% into the final hours of trading, while the strongest reading of household confidence in eight years helped the Nikkei 225 rise 0.12% on the session to close at 29,730.79 points.