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Dow Futures Slide On Inflation Concerns, Walmart Earnings; Weekly Jobless Claims Rise to 861,000

Commodity prices are indicating faster-near term inflation, while bond markets are re-setting expectations for growth and employment as Congress debates terms of a further $1.9 trillion in COIVD relief.

The Thursday Market Minute

  • Global stocks mixed as bond market selloff pauses ahead of U.S. jobless claims and commodity prices continue to test multi-year highs.
  • Copper trades at the highest level since 2012 while U.S. oil prices push past $61 per barrel amid refining shutdowns triggered by extreme cold in Texas.
  • Ten years TIPS indicate the highest inflation expectations since 2014 as stimulus boosts retail sales, factory output impresses and producer prices jump. 
  • New COVID cases plunge, while more than 40 million Americans have now received at least one dose of either the Pfizer or Moderna vaccine.
  • U.S. equity futures suggest a weaker open on Wall Street after fourth-quarter earnings from Walmart and weaker-than-expected weekly jobless claims data.

U.S. equity futures slipped lower Thursday, even as the recent bond market selloff appeared to pause heading into a key reading of weekly jobless claims that could cement recovery and inflation expectations for the world's biggest economy.

Stocks extended their declines, as well, after a weaker-than-expected fourth-quarter earnings report from Walmart  (WMT) - Get Walmart Inc. Report, which included a tepid 2022 outlook and rising investment costs that overshadowed a record $152 billion in sales.

Weekly jobless claims rose to 861,000 for the period ending February 6, well ahead of the consensus forecast of 765,000. 

Stronger-than-expected readings for factory output and retail sales yesterday, the latter of which was powered by December's $900 billion stimulus bill, alongside a big jump in producer prices has investors worried about faster inflation as the economy begins to escape the COIVD pandemic's grip. 

Inflation-protected bonds are indicating a CPI rate of 2.246%, the highest in nearly seven years, and the gap between 2-year and 10-year note yields is sitting at the steepest since early 2017 as Congress fine-tunes President Joe Biden's relief effort that will add another $1.9 trillion to the already-improving economy.

Minutes from the Federal Reserve's January policy meeting, published yesterday, indicated that officials aren't terribly concerned about the recent inflation pressures, noting that "participants agreed that the economy remained far from the Committee’s longer-run goals and that the path ahead remained highly uncertain, with the pandemic continuing to pose considerable risks to the outlook.”

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Commodity prices, too, are extending recent gains, with oil touching fresh 52-week highs amid refining shutdowns in Texas triggered by the state's record cold snap and the prospect of renewed energy demand in the second half of the year.

WTI futures for March delivery were marked 24 cents higher at $61.38 per barrel while benchmark 3-month copper prices in London -- a closely-watched indicator of economic growth -- rose 3.3% to $25,380 per ton, the highest since 2012.

The rise in Treasury bonds yields, however, looks to have paused in overnight trading as benchmark 10-year notes held at 1.29% and the U.S. dollar fell 0.3% against a basket of its global peers to trade at 90.71. 

That could provide stocks with some upside Thursday, although investors are likely to key on both Walmart's fourth-quarter earnings report and the weekly jobless claims data at 8:30 am Eastern time for direction. 

Futures contracts tied to the Dow Jones Industrial Average suggests a 165 point pullback, while those linked to the S&P 500, which is up 4.7% for the year, are priced for a 25 point decline. Nasdaq Composite futures, the most sensitive to interest rate changes given their reliance on tech stock performance, are indicating a 130 point decline.

Overnight in Asia, China markets traded for the first time this week following the country's Lunar New Year celebrations, with stocks falling 0.7% in Shanghai, pulling the region-wide MSCI ex-Japan index 0.82% lower heading into the final hours of trading.

European stocks struggled to find direction ahead of the U.S. data, but slipped lower after Walmart earnings and weekly jobless claims, with the Stoxx 600 falling 0.36% lower by mid-day trading and Britain's FTSE 100 down 1% by lunchtime in London.