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Dow Futures Slump Amid Renewed Inflation Fears Following April CPI Data

Record-high labor shortages, soaring commodity prices and rising market volatility has stocks on the defensive Wednesday ahead of April inflation data.

The Wednesday Market Minute

  • Global stocks extend slump as inflation concerns grip markets from Tokyo to Toronto amid record U.S. labor shortages and soaring commodity prices. 
  • Inflation concerns reflected in market-based gauges, which hit the highest levels in a decade, and April CPI data showing the biggest core increase since 1982.
  • Benchmark 10-year note yields rise to 1.645% in early trading ahead of a $41 billion auction later today.
  • The CBOE's main equity volatility index, the VIX, trades at the highest levels since March.
  • CDC data shows 116.6 million Americans have now been fully vaccinated against the coronavirus, with around 263.1 million doses administered as of Wednesday.
  • U.S. equity futures suggest a weaker open on Wall Street following April CPI data at 8:30 am Eastern time and 10-year note auction results at 1:00 pm.

U.S. equity futures traded lower again Wednesday, with global stocks caught in their longest losing streak in two months, as investors continue to worry that faster inflation will eat into corporate profits and prompt a near-term reaction from the Federal Reserve.  

A combination of soaring commodity prices, including record-high copper, near $70 oil and the longest streak of food price increases in seven years, coupled with a labor market shortage that is pressuring wages for employers up and down the country has investors increasingly convinced that the Fed will need to re-think its insistence that inflation is 'transitory'. 

Today's April CPI data showed the biggest month-on-month increase in core inflation since 1982, at 0.9%, and a headline reading of 4.2% that was boosted by energy price increases and was the fastest rate of gain since 2008.

JOLTs data showing a record high 8.1 million unfilled openings and persistent warnings from company bosses on margins pressures brought by commodity prices increases and supply chain backlogs, will undoubtedly factor in to second and third quarter earnings, prompting prices adjustments in U.S. stock benchmarks.

Equity market volatility has also returned, with the CBOE's benchmark VIX index rising 12.6% in extended hours trading to 22.17, the highest since March 11.

Curiously, despite all the inflation talk -- as well as decade-high levels for market-based gauges such as TIPS -- the bond market has remained relatively dormant this week, with benchmark 10-year note yields rising only modestly, to 1.645%, following the April CPI reading.

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That could change later today, however, when the Treasury auctions $41 billion in new paper at 1:00 pm Easter time, just hours after the inflation data release from the Bureau of Labor Statistics. 

In the meantime, stocks look set for a modestly weaker open, with futures contracts tied to the Dow Jones Industrial Average -- which suffered its biggest single-day decline since February on Tuesday -- priced for a 130 point dip and those linked to the S&P 500 indicating a 28 point pullback.

The Nasdaq Composite, which staged an historic comeback yesterday after falling nearly 300 points at the trough of the session, is set to open 175 points lower.

Oil prices were active again for a third consecutive session, with prices getting a boost from fuel shortages linked to the Colonial Pipeline cyber attack and a 2.5 million barrel decline in domestic crude stocks reported by the American Petroleum Institute last night. 

WTI futures contracts for June delivery were marked 86 cents higher at $66.14 per barrel while Brent crude for July gained 87 cents to trade at $69.42 per barrel.

Overnight in Asia, stocks extended Wall Street's slump with the Nikkei falling 1.6% to close at 28,147.51 points while the region-wide MSCI ex-Japan fell 0.8%.

In Europe, stocks were mounting something of a rebound in early Wednesday trading following an upgrade in GDP forecasts from the European Commission and stronger-than-expected March growth figures from the United Kingdom.

The Stoxx 600 was marked 0.4% higher in Frankfurt while Britain's resource-heavy FTSE 100 gained 0.7% in London.