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Dow Futures Tumble as Fed Tapering, COVID Concerns Grip World Markets

World stocks are on pace for their worst week since February, while a surge in volatility, triggered by COVID concerns and Fed tapering, could tip the Dow into negative territory for August.

The Thursday Market Minute

  • Global stocks  on pace for worst week since February as COIVD surge hits growth prospects, Fed tapering rattles bulls.
  • Fed Minutes point to 2021 start for tapering, but intense debate on timing and process. 
  • Toyota plans production cuts as chip shortage, COVID spike shuts plants in Asia region.
  • VIX volatility gauge jumps to early May highs, while oil prices tumble and copper dips below $9,000 a tone on the LME.
  • U.S. equity futures suggest sharp opening bell declines on Wall Street ahead of second quarter earnings from Macy's and Kohl's and weekly jobless claims at 8:30 am Eastern time.

Wall Street futures fell sharply lower Thursday, while commodity prices tumbled and the dollar surged to a nine-month high against its global peers, as investors fled risk markets amid concerns that the Federal Reserve could begin rolling back support just as a resurgence in coronavirus infections looks set to stall the global economic recovery. 

Stocks did pare some gains following data showing the lowest levels of weekly jobless claims -- 348,000 -- since the pandemic began in March of last year, although that was offset by a weaker-than-expected reading of the July Philadelphia Fed manufacturing activity index. 

Minutes from last month's Fed meeting showed a desire to being tapering the pace of its $120 billion in bond purchases -- the first of many steps need on the path to a formal rate hike -- later this year, although the timing and process was subject to intense debate.

At the same time, Delta-variant coronavirus infections look to be having a heavier-than-expected impact on both the domestic and world economies, with recent U.S. data showing slowdowns in retail sales, housing starts, consumer sentiment and manufacturing growth.

In Asia, where the rate of infection continues to accelerate, Japan's giant Toyota Motor Co.  (TM) - Get Toyota Motor Corp. Report is reportedly planning to slash production rates by 40% next month as it grapples with the global semiconductor shortage and government-mandated shutdowns. 

Goldman Sachs, in fact, trimmed its Q3 U.S. GDP forecast to 5.5%m noting the "Impact of the Delta variant on growth and inflation is proving to be somewhat larger than we expected".

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Add into the mix China's crackdown on big tech companies, the unparalleled events in Afghanistan, a spike in market volatility and the typical August liquidity lull, and you have a potent cocktail of risk factors that have world stocks on course for their worst week since February.

On Wall Street, futures contracts tied to the Dow Jones Industrial Average suggest a 305 point opening bell decline for the 30-stock benchmark, tipping it into negative territory for the month, while those tied to the S&P 500 are priced for a 35-point pullback.

Nasdaq futures are looking at a 100 decline amid a 0.7% pre-market decline for Apple  (AAPL) - Get Apple Inc. Report and a 2% slide for Tesla  (TSLA) - Get Tesla Inc Report.

Benchmark 10-year Treasury note yields traded at 1.223% in overnight dealing, more than 12 basis points inside last week's home-run auction levels, while the dollar index was marked 0.27% higher against a basket of its global peers at 93.395. 

Nvidia  (NVDA) - Get NVIDIA Corporation Report shares were the lone advancer in pre-market trading Thursday, with shares in the gaming and data-center chipmaker up 1.8% at $193.80 after it posted stronger-than-expected second quarter earnings and issued a robust near-term forecast. 

On the downside, Robinhood Markets  (HOOD) - Get Robinhood Markets, Inc. Class A Report shares plunged 9.8% to $44.90 each after the online trading platform posted a third quarter slowdown in volumes and forecast slower retail trading activity over the three months ending in September. 

Oil prices slumped to a four-month low in overnight trading, with WTI futures for September delivery down $2.38 to $63.085 per barrel, while copper -- a reliable benchmark for global growth prospects -- tumbled below $9,000 a ton on the London Metals Exchange for the first time since April.

In overseas markets, European stocks fell sharply in the opening hours of trading in Frankfurt and London, with the Stoxx 600 benchmark down 1.9% and Britain's commodity-heavy FTSE 100 down 1.9%.

Asia stocks stumbled, as well, with the MSCI ex-Japan benchmark down nearly 2% heading into the final hours of trading and Japan's Nikkei 225 falling 1.1% to close at 27,281.17 points.