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Dow Futures Slip Lower As Soaring Retail Sales Stokes Inflation Concerns: Fed Minutes in Focus

A COVID recovery for the global economy is likely to bring faster inflation, markets suggest, with added pressure from central banks determined to hold short-terms rates are record lows.

The Wednesday Market Minute

  • Global stock rally pauses as investors fret over faster inflation amid rising bond yields and commodity prices.
  • Benchmark 10-year Treasury yields ease from March 2020 highs, but hold near 1.3% as bond markets continue their weeks-long selloff.
  • U.S. oil prices pass $60 amid refining shutdowns in Texas triggered by a record cold snap, while copper prices trade near the highest levels since 2012.
  • Verizon Communications and Chevron Corp. jump higher in pre-market trading after SEC filings reveal new positions in each for Warren Buffett's Berkshire Hathaway.
  • U.S. equity futures suggest a weaker open on Wall Street following fourth quarter earnings from Hilton Hotels and stronger-than-expected January retail sales data at 8:30 am Eastern Time.

U.S. equity futures slipped Wednesday as a stock rally that has lifted markets to record highs paused amid rising Treasury bond yields and deepening concerns that a COVID recovery will bring faster inflation. 

A much stronger-than-expected reading of January retail sales, which soared 5.3% to just under $570 billion, revived the inflation debate amid the likely passing of another $1.9 trillion in stimulus from U.S. lawmakers later this month.

Benchmark 10-year Treasuries traded as high as 1.33% following the retail sales data release -- levels last seen in March of 2020 -- as investors continued to dump bonds amid signs of creeping inflation and the Federal Reserve's commitment to keeping short-term lending rates anchored at zero percent. 

The twin dynamics put the difference between 2-year and 10-year note yields at an early 2017 high of 116 basis points and kept tech and utility stocks -- the most sensitive to interest rate increases -- on the back foot for much of the Tuesday session.

Rising oil and copper prices, buoyed by cold weather in Texas and global economic recovery hopes, also added to the inflation mix, as did a stronger U.S. dollar as it pushed emerging market currencies lower and added to energy costs in their respective economies.

Comments from San Francisco Fed President Mary Daly did little to soothe the market's concerns after she told an event in the California city that inflation isn't "a risk we should think about right now".

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With minutes from the Fed's January meeting -- published this afternoon -- likely to echo that sentiment, investors seem reading to re-set expectations for market interest rates and rising consumer prices in the months ahead by trimming equity market positions.

Futures contracts tied to the Dow Jones Industrial Average, which closed at a record high 31,522.75, are indicating a modest 30 point dip while those linked to the S&P 500 suggest an 8.5 point pullback for the broader benchmark. Nasdaq Composite futures are also indicating a 75 point retreat.

Stocks on the move in pre-market trading include Verizon Communications  (VZ)  and Chevron Corp.  (CVX) , both of which were revealed as new holdings for Warren Buffett's Berkshire Hathaway  (BRK.A)  following SEC filings published late yesterday afternoon. 

In other markets, Bitcoin prices extended their recent surge to touch $51,000 while higher Treasury yields added more downward pressure to gold prices, which slipped to $1,785 per ounce in overnight trading.

The Texas cold snap, the worst in a century, will likely keep key refining facilities offline for at least the rest of the week, producers have indicated, adding upward pressure to a market that is already trading at March 2020 highs following OPEC's decision to maintain its recent agreement on production cuts.

WTI futures contracts for March delivery, the benchmark for U.S. crude prices, were marked 85 cents higher at $60.90 per barrel in overnight trading, while the online consumer advocate noted that average prices at the pump are now closing in on $2.6 per gallon.

Overnight in Asia, China markets remained closed owing to the Lunar New Year celebrations, while Japan's Nikkei 225 gave back 0.58% to close at 30,292.19 in a session defined by rising bond yields and inflation concerns.

European stocks were on a similar path, with the Stoxx 600 retreating from near 52-week highs in a tepid Wednesday session lead by a 0.6% pullback for the DAX performance index in Germany.