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Dow Futures Slump On Bullard Taper Comments, 'Witching Hour' Volatility

With the Fed now hinting at near-term tapering, inflation trades are fading and debate now turns to growth prospects and equity values heading into the second quarter earnings season.

The Friday Market Minute

  • Global stocks edge lower in muted trading as investors parse through the implications of this week's Fed rate decision and pullback in commodity prices.
  • St. Louis Fed President James Bullard tells CNBC that the Fed has already started discussions about near-term tapering of bond purchases.
  • Commodities prices extend slide amid the worst week of declines in eight months, as China moves to tame speculators and demand questions persist.
  • Equity inflows reach $39 billion this week, the most since March, as investors get ready for what is likely to be a solid second quarter earnings season
  • Benchmark 10-year note yields ease to 1.501% while the dollar index is on pace for its best weekly gain since September.
  • CDC data shows 147.7 million Americans have now been fully vaccinated against the coronavirus, with around 315 million doses administered as of Thursday.
  • U.S. equity futures suggest a modestly higher open on Wall Street with Carnival, AMD, Apple and American Airlines the most active stocks in pre-market trading.

U.S. equity futures turned notably lower Friday as investors continue to shift asset allocations in the wake of this week's Fed rate decision and mixed signals on post-pandemic growth and the traditional quarterly 'quadruple witching hour' on Wall Street.

Stocks were also hit by comments from St. Louis Fed President James Bullard, who told CNBC that Federal Reserve Chairman Jerome Powell had essentially started talks to introduce the idea of trimming the pace of the central bank's $120 billion in monthly bond purchases.

Commodity markets excluding oil, meanwhile, are having their worst week in eight months, with copper and gold slumping the most in more than a year as traders react to China's moves to tame price speculation and subtle suggestions in economic data that post-pandemic demand may be overstated, or at the very least affected by stubborn supply-chain bottlenecks that continue to clip manufacturing growth.

At the same time, however, second quarter earnings are likely to come in stronger than the expected 63.1% year-on-year gain forecast by analysts. which would take collective S&P 500 profits to a share-weighted $374.7 billion, according to Refinitiv estimates.

No wonder, then, that Bank of America' 'Flow Show' report indicated global equity inflows of $39 billion this week, the largest since March, taking the annualized projection to a record $1.2 trillion. 

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Added to the mixed is the quarterly 'quadruple witching hour' on Wall Street, where futures and options on index futures, as well as futures and options on single stocks, which has lifted the CBOE's benchmark volatility gauge, the VIX, to a one-month high of 19.46 points.

So with the backdrop for stocks looking solid, and the signals from bonds and commodities looking mixed, U.S. equity futures are set for a weaker open Friday with contracts tied to the Dow Jones Industrial Average indicating a 360 point pullback.

Futures linked to the S&P 500, meanwhile, are priced for a 34 point fall while the Nasdaq Composite is set for a more modest 95 point dip.

Advanced Micro Devices  (AMD) - Get Report shares were a notable pre-market mover, rising 0.5% to $84.95 each and extending yesterday's 5.5% leap after Google parent Alphabet  (GOOGL) - Get Report said it would use the semiconductor group's data center chips in its cloud computing services. 

In other markets, oil prices eased in overnight trading as the dollar raced to its highest levels in more than two months, and its best weekly gain since September, taking WTI crude 20 cents lower to $70.84 per barrel. Bitcoin was marked 0.5% lower at $37,625 while the dollar index added 0.015% against a basket of its global peers to trade at 92.029. 

European stocks were also in the red, but still on pace for a fifth consecutive weekly gain -- amid the largest equity market inflows since February of 2018 -- with the Stoxx 600 marked 0.1% lower at 458.89 points.

In Asia, Tokyo's Nikkei 225 closed 0.19% lower at 28,964.08 points while the region--wide MSCI ex-Japan benchmark edged 0.11% higher heading into the close of trading.