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Dow Futures Slide on Inflation Concerns, Boeing 777 Suspension

Wall Street looks set to open lower Monday as commodity prices and bond yields reflect near-term inflation concerns in an improving global economy.

The Monday Market Minute

  • Global stocks retreat as inflation expectations grind higher amid improving vaccine rollouts and solid near-term growth prospects.
  • Commodity prices extend gains, with copper trading at a 9.5 year high and Brent crude well above $63 per barrel.
  • House lawmakers are likely to vote on President Joe Biden's $1.9 trillion stimulus bill Friday, with the Senate following up next week.
  • Benchmark 10-year Treasury bond yields hit a 13-month high of 1.38%, while market-based inflation expectations hold at the highest levels in two years. 
  • Data from Israel suggests a stronger-than-expected performance for the Pfizer/BioNtech vaccine in early rollouts, while drugmakers GlaxoSmithKline and Sanofi plan trials for a new candidate later this year.
  • Boeing shares slump as planemaker pulls 777 widebodies from service following Pratt & Whitney engine incident in Denver.
  • U.S. equity futures suggest a weaker open on Wall Street heading into a heavy week for retail earnings and two days of testimony from Federal Reserve Chairman Jerome Powell.

U.S. equity futures traded lower Monday, while commodity prices and Treasury bond yields extended recent gains, as investors continue to re-set market expectations amid a global economic recovery that is likely to bring faster inflation. 

Commodity prices have paced market gains over the past four weeks as vaccine rollouts accelerate and investors bet on a sustainable second-half recovery for the global economy. Data from Israel suggesting stronger-than-expected levels of protection for the Pfizer  (PFE) /BioNtech  (BNTX)  dose, as well as the growing numbers of Americans receiving at least one shot of the two approved vaccines, has cemented the case for near-term growth.

Copper futures, often seen as a reliable gauge for near-term growth, traded at a nine-and-a-half year high of $9,269.50 per ton in early London trading, while oil prices tested fresh 13-month highs of more than $63 dollars per barrel. 

Those gains, however, are also pointing to higher rates of inflation, which are being discounted by higher Treasury bond yields, and that's taken some of the steam out of global equity markets this month, particularly given the fact that another $1.9 trillion in the stimulus is likely to find its way into the U.S. economy once lawmakers approve President Joe Biden's relief bill later this month.

Benchmark 10-year Treasury bond yields hit a 13-month high of 1.38% in overnight trading, extending their year-to-date gain to around 43 basis points, while market-based inflation expectations are trading at near two-year peaks.

U.S. equity futures are suggesting a modest opening bell pullback as a result, with contracts tied to the Dow Jones Industrial Average indicating a 200 point decline and those linked to the S&P 500 priced for a 32 point retreat. Nasdaq Composite futures are indicating a 195 point pullback. 

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Inflation concerns have blunted, but certainly haven't overturned, the bull case for stocks, which remain within touching distance of all-time highs amid impressive corporate earnings and nominal bond rates that remain historically low. 

With around 80% of the S&P 500 reporting profits for the December quarter, earnings are expected to rise 3.7% from the same period in 2019 before rebounding to 21.7% over the three months ending in March. 

That said, stocks are trading at notably high valuations, with the collective S&P 500 P/E ratio sitting at 22.2, well ahead of the five-year average of 15.3.

Retail earnings -- a key barometer of consumer strength -- will take center stage with week with updates from Home Depot  (HD) , Lowe's Companies  (LOW) , Macy's  (M)  and Foot Locker  (FL) , as well as fourth-quarter earnings from Salesforce  (CRM)  and vaccine maker Moderna  (MRNA) .

Notable pre-market movers Monday include Boeing  (BA) , which is down 3.5% after it asked airlines to remove the 69 777 widebodies currently in service that work on Pratt & Whitney engines following Saturday's incident in Denver involving a United Airlines  (UAL)  jet. 

Inflation concerns kept most global markets in the red today, a well, with Europe's Stoxx 600 falling 0.7% in Frankfurt despite a stronger-than-expected reading for German business sentiment and improving vaccine rollout numbers.

In Britain, where Prime Minister Boris Johnson is expected to outline a timetable for the re-opening of schools and non-essential businesses later today, the FTSE 100 was marked 0.6% lower as the pound held at a four-year high of 1.4015 against the U.S. dollar. 

Overnight in Asia, Japan's Nikkei 225 closed 0.46% higher on the session at 30,186.03 points while steep declines in China pushed the region-wide MSCI ex-Japan index to a 1.2% decline heading into the final hours of trading.