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Dow Futures Tumble, Bond Yields Slide As Growth Angst Crushes Reflation Trade

Economically-sensitive stocks are trading in the red this mornings as investor concern shifts to slowing growth signals amid the ongoing rise in Delta-variant coronavirus infections around the world.

The Thursday Market Minute

  • Global stocks slide as growth concerns trump inflation fears amid the ongoing surge in Delta variant coronavirus infections.
  • Fed minutes suggest the U.S. recovery remains uneven, with downside risks, suggesting bond market support will remain in place until the end of the year.
  • China lawmakers hint at rate cuts in the world's second largest economy as domestic demand slows and infection increases tame regional trade.
  • Oil prices slump as demand concerns offset OPEC uncertainty ahead of Energy Department data on crude stockpiles later this morning.
  • Benchmark 10-year Treasury note yields trade at a five-month low of 1.25% in overnight dealing, while the dollar index slips 0.14% from its three-month high to 92.517.
  • U.S. equity futures suggest notably weaker open on Wall Street after weekly jobless claims showed a modest rise in weekly jobless claims, to 373,000, over the period ending on July 3.

Wall Street futures tumbled Thursday, while benchmark Treasury bond yields sunk to a five-month low, as investors hit the brakes from last night's record high amid increasing concern over the strength of the global economy's post-pandemic recovery.

Minutes from the Federal Reserve's last meeting, which ended on June 16, showed that Chairman Jerome Powell and his colleagues felt that the benchmark of "substantial further progress" on job growth and inflation has not yet been reached, and therefore the central bank would likely continue the pace of its $120 billion in monthly bond purchases until the end of the year. 

That assessment rattled investors, who were already looking at key manufacturing and services sector data releases that indicated labor market and raw materials shortages were hampering growth in major economies around the world. 

Hints from lawmakers in China yesterday to near-term interest rate cuts added to the concern, as it suggested the world's second largest economy may suffer from both domestic demand pressures and the slowdown in trade that's likely to follow the current wave of Delta-variant coronavirus infections seen around the world. 

So with oil prices falling for a second consecutive session on demand concerns, even as OPEC members hold to to the remnants of their production cut agreement, and benchmark 10-year Treasury note yields falling to a five-month low of 1.25% in overnight trading, stocks are looking at their biggest pullback since early May.

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Futures contracts tied to the Dow Jones Industrial Average suggest a 450 point opening bell decline, while those linked to the S&P 500 are priced for a 56 point slump at the start of trading.

The pullback in Treasury bond yields, which typically supports tech stocks, was not in evidence Thursday, however, as futures tied to the Nasdaq Composite are priced for a 215 point opening bell slump.

Tech stocks were also affected by last night's move from 37 state attorneys general to file an antitrust lawsuit against Google parent Alphabet  (GOOGL) - Get Report alleging it used restrictive contracts with developers to maintain a monopoly in its Google Play app store.

Google shares were marked 1.66% lower in pre-market trading at $2,487.50 each.

In overseas markets, European stocks fell sharply in the opening hours of trading in Frankfurt, with the trade-sensitive DAX performance index down 1.3% ahead of today's European Central Bank policy announcement at 7:45 am Eastern time, where President Christine Lagarde is expected to unveil a new 2% inflation target that includes a sustained period of higher prices to achieve. 

In Asia, regional stocks slumped to a two-month low, with the MSCI ex-Japan index down 1.6%, as growth concerns in China were matched by the ongoing crackdown on tech companies from officials in Beijing.

In Tokyo, where lawmakers declared yet another COVID state of emergency just two weeks before the start of the Olympic Games, stocks fell for a second consecutive session to peg the Nikkei 225 at 28,118.03 points.