The Wednesday Market Minute
- Global stocks slip lower as investors brace for one of the most important Fed decisions in years as inflation trumps COVID as key portfolio risk.
- Benchmark 10-year note yields rise to 1.673% in early New York trading ahead of the Fed's March rate decision and statement at 2:00 PM Eastern time.
- CDC data shows 110.7 million coronavirus vaccine doses have been administered as of yesterday, with nearly 39 million now fully inoculated.
- Oil prices slip lower as IEA pours water on "supercycle", citing ample supplies and spare capacity.
- U.S. equity futures suggest a mixed open on Wall Street, with tech stocks pacing declines, ahead of February housing starts at 8:30 am Eastern time and after-the-bell earnings from Nike.
U.S. equity futures traded mixed Wednesday as investors braced for one of the most important Federal Reserve policy decisions in years amid a relentless rise in Treasury bond yields and renewed concerns for faster near-term inflation.
Stocks snapped a seven-day winning streak last night, in fact, as benchmark 10-year note yields crept higher, ending the session at 1.632% even after a disappointing reading of U.S. retail sales and slower-than-expected industrial production growth for the month of February.
With just under $2 trillion moving its way into the economy in the coming months, under terms of the American Rescue Act, growth and inflation prospects are accelerating and investors are re-setting expectations for stock and bond performance.
The Fed will need to address all of that, as well as market expectations for near-term inflation -- which topped the highest levels since at least 2011 earlier this week -- in both the main statement at 2:00 PM Eastern time and Chairman Jerome Powell's press conference that follows 30 minutes later.
"Markets, which are after all about capital, tend to focus most on inflation, and that is what we are seeing today," said Brad McMillan, chief investment officer for Commonwealth Financial Network. "They want the Fed to act to avert even a distant threat of inflation, regardless of the consequences for the real economy."
"But with inflation at low levels for the past decade now and with unemployment as high as it is, the Fed is now clear that the focus for the moment is on employment, not inflation," he added.
Stocks futures suggest investors are happy to wait for some clarity on that difference in focus, with futures contracts tied to the Dow Jones Industrial Average indicating a modest 45 point opening bell gain.
Contracts tied to the S&P 500, which is up 5.5% for the year, suggest a 12 point decline from last night's 3,962.71 point close, while those linked to the tech-focused Nasdaq are indicating a 150 point pullback.
Benchmark 10-year note yields touched 1.667% in early trading, passing the 1.642% 13-month high reached on Friday afternoon, while the dollar index was marked 0.1% higher at 91.958 against a basket of its global currency peers.
Oil prices slipped lower in European trading after the International Energy Agency said ample global supplies, and significant spare capacity linked to OPEC production cuts, make a near-term crude 'supercycle' unlikely.
Brent crude futures tumbled 91 cents to $67.48 following the IEA's monthly report, while WTI contracts for April fell 70 cents to $64.08 per barrel.
Elsewhere, European stocks traded lower across the board Wednesday heading into the Fed decision -- which will come after markets in the region are closed -- and amid renewed concerns for the uneven vaccine rollout plans in major economies such and France and Germany.
In Asia, last night's pullback on Wall Street, and the quiet increase in Treasury bond yields, clipped gains for regional stocks, with the MSCI ex-Japan benchmark falling 0.39%. The Nikkei 225 in Tokyo, meanwhile, ended the session little-changed at 29,914.33 points.