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Dow Futures Leap Higher as Bulls Extend Recovery Bets, Shrug Off Inflation

Global stocks hit a fresh record high Tuesday, powered by commodity prices and a renewed leap in oil, as investors bet that post-pandemic recovery will outpace inflation concerns.

The Tuesday Market Minute

  • Global stocks hit fresh all-time high as post-pandemic growth prospects improve and central banks continue to maintain support programs despite faster inflation
  • European factory activity hits an all-time high in May while inflation comes in at the ECB's preferred 'just below 2%' target for the first time since 2018.
  • Oil prices test three-year highs as OPEC members forecast a big jump in global demand and downplay the impact of a return to the market for Iranian crude. 
  • Benchmark 10-year note yields edge higher, to 1.63%, in overnight trading while the dollar index fell 0.25% to trade at 89.811 amid renewed inflation concerns.
  • CDC data shows 135.1 million Americans have now been fully vaccinated against the coronavirus, with around 295 million doses administered as of Monday.
  • U.S. equity futures suggest a solid open on Wall Street ahead of a busy week for economic data, including final P:MI readings for May, weekly jobless claims and Friday's crucial non-farm payroll report.

U.S. equity futures jumped higher Tuesday, while oil traded at the highest levels in more than two years amid a renewed rally in commodity prices, as data underpinning a powerful post-pandemic recovery continues to indicate faster inflation prospects. 

Global stocks, as measured by the benchmark MSCI World index, hit a fresh record high Tuesday following the strongest manufacturing PMI reading on record for the European economy last month and a leap in oil prices powered by a robust demand forecast from OPEC+ members meeting in Vienna this week.

In the U.S., ISM manufacturing PMI data is likely to confirm similar surges in factory output and employment last month, with input prices also rising to all-time highs following last week's reading of the Federal Reserve's preferred inflation gauge, the PCE Price Index, which speed to its fastest pace since 1992 amid surging commodity prices and supply chain bottlenecks. 

However, the Fed's persistent messaging on inflation -- and its insistence that price pressures will fade into the second half of the year -- has limited the impact of higher CPI and PCE readings and kept Treasury bond yields in check, allowing stocks to climb in concert with stronger-than-expected earnings and improving growth prospects. 

That looks true again Tuesday, as Wall Street futures look set to kick-off the June trading month with solid gains across the board, including a 270 point opening bell move for the Dow Jones Industrial Average and a 23 advance for the S&P 500.

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Tech stocks, too, look set to add to recent gains with futures tied to the Nasdaq Composite priced for a more modest 57 point advance thanks in part to pre-market moves to the upside for Apple  (AAPL) - Get Apple Inc. Report, Tesla  (TSLA) - Get Tesla Inc. Report and Advanced Micro Devices  (AMD) - Get Advanced Micro Devices Inc. Report.

Oil prices continued their 2021 surge, which has taken U.S. crude some 30% higher since the start of the year, as OPEC leaders, as well as non-member allies such as Russia, meet virtually in Vienna this week to discuss their near-term output goals and asses the impact of the return of Iranian oil to global markets.

OPEC+ sees a 6 million barrel increase in world demand this year as economies exit their pandemic malaise, while secretary general Mohammad Barkindo told reporters Tuesday that he expects an "orderly" return of Iranian crude to the market once its nuclear talks with the U.S. are concluded. 

WTI contracts for July delivery, which are tightly-aligned with U.S. gasoline prices, were marked $1.22 higher from Friday's close at $68.12 per barrel while Brent contracts for August, the global benchmark, jumped $1.44 to a 2018 high of $70.77 per barrel.

In Europe, stocks hit a fresh record peak following the final reading of factory output in the region, which also hit an all-time high, and the first estimate of Eurozone inflation to hit the European Central Bank's 'just below 2% target' since 2018.

The Stoxx 600 was marked 1.1% higher in early trading Tuesday, paced by a 1.44% gain for the DAX performance index in Germany and a 1.3% move higher for the commodity-focused FTSE 100 in London.

Overnight in Asia, stocks were mixed, with Japan's Nikkei 225 slipping 0.16% on the first day of the trading month while the region-wide MSCI ex-Japan benchmark hit a one-month high despite a move by China's central bank to weaken the yuan by calling for tighter cash holdings for the nation's banks.