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Dow Futures Lower With Fed Meeting in Sight; Musk Tweet Boosts Bitcoin

With bond markets calm and second quarter earnings set to surge, Wednesday's Fed rate decision could set the tone for summer stock performance.

The Monday Market Minute

  • Global stocks hit fresh record highs, while bond markets remain content with faster inflation signals, as investors look to this week's Fed meeting for summer direction.
  • Bond futures suggest the biggest long positions in nearly four years ahead of Wednesday's statement, indicating a lack of concern for near-term taper talk from Fed Chair Powell and his FOMC colleagues.
  • Benchmark 10-year note yields hold at 1.46% amid the biggest weekly pullback for Treasuries in more than a year while the dollar index eases to 90.481.
  • Bitcoin moves closer to $40,000 mark as Tesla CEO Elon Musk says he could resume accepting the cryptocurrency as payment if miners up their clean-energy mix.
  • CDC data shows 143.9 million Americans have now been fully vaccinated against the coronavirus, with around 309.3 million doses administered as of Sunday.
  • U.S. equity futures suggest a mixed open on Wall Street as investors look to Wednesday's Fed rate decision .

U.S. equity futures traded mixed Monday, while Treasury bond yields held near multi-month lows, as investors dug in near record highs ahead of this week's Federal Reserve meeting that could set the tone for summer stock performance. 

The Fed begins its two-day rate setting meeting tomorrow, with a formal decision slated for 2:00 PM Eastern time Wednesday, amid a backdrop of the fastest rise in consumer prices for more than a decade and persistent questions over the nature -- and staying power -- of inflation as the economy nears its full exit from the coronavirus pandemic. 

Any hint from Chairman Jerome Powell and his colleagues that inflation pressures may spark discussions over slowing the pace of the Fed's $120 billion in monthly bond purchase, the first step towards normalizing record low interest rates, will undoubtedly rattle markets, but a reiteration of the view that inflation pressures are 'transitory' and likely to ease over the second half of the year will likely add to the market's bullish tinge.

Bond investors aren't betting on any 'taper talk', at least at the present moment, with futures showing the biggest net long positions in more than two-and-a-half year. The tally of investors betting against the dollar, meanwhile, is holding near three-month highs at $17.66 billion, according to CFTC data published Friday. 

And with second quarter earnings season nearing, investors are looking for a 63.1% surge in collective S&P 500 profits to a share-weighted $374.7 billion, with industrials and consumer discretionary stocks leading the post-pandemic rebound.

That may give stocks another boost this week, although futures contracts tied to the Dow Jones Industrial Average are indicating a modest 30 point opening bell decline. Contracts linked to the S&P 500, which closed at a record high 4,247.44 points on Friday, are priced for a 1 point bump to the upside.

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Nasdaq Composite futures, meanwhile, added 40 points as benchmark 10-year Treasury bond yields retreated to 1.46% and Tesla  (TSLA) - Get Report traded 0.6% higher in pre-market after founder and CEO Elon Musk said the group sold around 10% of its $1.5 billion in bitcoin holdings.

Musk's unveiling also included a pledge to resume accepting the cryptocurrency as payment for his company's clean-energy cars "when there's confirmation of reasonable (~50%) clean energy usage by miners with positive future trend," pushing bitcoin north of $39,000 in early Monday trading.

In Europe, stocks hit a record high on both the prospect of a dovish Fed decision on Wednesday and last week's 'stay-the-course' message from the European Central Bank, which pledge to keep its bond purchases and record low rates in place until at least the end of the year. 

Oil prices added to recent gains, extending WTI crude's three-week rally to well north of $71 a barrel, as traders looked to stronger second-half demand in key energy markets.

Brent crude contracts for August delivery, the global benchmark, added 68 cents from Friday's close in New York to trade at $73.37 per barrel while WTI crude was marked 56 cents higher at $71.47 per barrel.

Overnight in Asia, Japan's Nikkei 225 closed 0.74% higher in muted trading as markets around the region, including in China, were closed for the traditional Dragon Boat Festival Holiday.

The gains, however, alongside today's moves in Europe, lifted the MSCI Word index to a fresh record high of 716.61 points.