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Dow Futures Tumble as Inflation Woes Mount; Bitcoin Slumps Below $30,000

A key market inflation gauge is trading at the highest levels since 2008 ahead of the release of minutes from the Federal Reserve's April interest rate decision.

The Wednesday Market Minute

  • Global stocks slide as inflation concerns resurface following faster-than-expected April readings in Europe and the United Kingdom.
  • Bitcoin plunges below $30,000 amid a broader cryptocurrency rout. 
  • BofA's Fund Managers' Survey tabs inflation risk and taper tantrum as key market risks -- replacing the pandemic's long-term impact -- ahead of today's April Fed minutes release at 2 pm Eastern time.
  • Market-based inflation gauges trade at 2008 highs, while benchmark 10-year note yields edge to 1.664%.
  • Global oil prices retreat from the $70 mark amid an infection surge in Asia and API data showing a modest build in domestic crude stocks.
  • CDC data shows 124.4 million Americans have now been fully vaccinated against the coronavirus, with around 275.5 million doses administered as of Tuesday.
  • U.S. equity futures suggest a notably weaker open on Wall Street following first quarter earnings from Target and Lowe's and the release of April Fed minutes at 2:00 pm Eastern time.

Wall Street futures extended declines into a second consecutive session Wednesday, with markets around the world sliding into the red, as investors return to focus on faster inflation signals ahead of the release of minutes from the Federal Reserve's April interest rate decision. 

Britain posted a doubling of its headline inflation rate Tuesday, to 1.5%, while Europe's harmonzied rate accelerated to 1.6% as energy and gas prices surged from last year and supply-chain bottlenecks boosted an array of consumer prices as regional economies slowly re-opened from the pandemic. 

The faster-than-expected readings followed a losing session on Wall Street last night, where impressive retail earnings from Home Depot  (HD)  and Walmart  (WMT)  failed to offset the impact of weak April housing starts and rising bond yields.

The 5-year TIPS breakeven rate, a key gauge of market inflation expectations, traded at a 2008 high of 2.72% overnight, while benchmark 10-year bond yields edged to 1.665%. 

Minutes of the Fed's April meeting could sooth some of the market's inflation concerns -- which have replaced the pandemic as the key tail risk for global investors, according to Bank of America's closely-tracked fund managers' survey -- but any hint of a crack in the central bank's view that price increases will be 'transitory' could trigger a sharp reaction in both equity and fixed income markets. 

"We agree with the Fed’s view that the current wave of Inflation will be high in the near-term but ultimately Transitory," said Gautam Khanna, a senior portfolio manager at Insight Investment, which has around $1.03 trillion in assets under management. "It is a function of base effects (the CPI figure is being compared to a year ago – during the height of lockdowns), pent up demand and supply chain friction."

"But how long is ‘transitory’?," he asked. "It could be anything from two months to 18. That’s where it starts to get a little bit interesting, this uncertainty will not sit well with investors. As such, we expect bouts of volatility and potential opportunities to ‘Buy the Dips’."

In the meantime, first quarter earnings from Target  (TGT)  and Lowe's  (LOW)  will hold the market's attention for much of the morning session, as will the ongoing slide in bitcoin, which fell below the $30,000 mark -- the lowest since early February -- in overnight trading following yesterday's crackdown on cryptocurrency activity in China. 

U.S. equity futures, meanwhile, suggest a notably weaker open, with contracts tied to the Dow Jones Industrial Average priced for a 400 point decline and those linked to the S&P 500 indicating a 55 point retreat.

The tech-focused Nasdaq, which is also the most sensitive to interest rate changes, is priced for a 230 point decline. 

Oil prices were also under pressure in early Wednesday trading, with traders citing renewed demand concerns from Asia amid a worrying resurgence in coronavirus infections and data from the American Petroleum Institute last night showing a surprise 620,000 buildup in domestic crude supplies.

WTI futures for June delivery were marked $1.24 lower at $64.25 per barrel while Brent contracts for July, the global benchmark, slid $1.25 cents to $67.46 per barrel.

In Europe, stocks slumped into the red following the faster-than-forecast inflation readings and last night's sell-off on Wall Street, with the Stoxx 600 falling 1.6% in Frankfurt and Britain's FTSE 100 sliding 1.4% in London.

Overnight in Asia, Japan's Nikkei 225 ended the session 1.28% lower at 28,044.45 points while the region-wide MSCI ex-Japan benchmark was last seen 0.9% lower heading into the final hours of trading.