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Dow, Nasdaq Futures Tumble As Tech Rout Intensifies on Inflation Fears

Tech stock selling intensified overnight as market-based inflation measures hit the highest levels in ten years ahead of tomorrow's key April CPI reading and a $41 billion 10-year note auction.

The Tuesday Market Minute

  • Global stocks slump as U.S. tech rout takes hold in Europe and Asia, pulling benchmarks to their biggest single-day declines in more than a month.
  • Inflation concerns intensify as market-based gauges hit the highest levels in a decade ahead of tomorrow's April CPI reading that is likely to indicate a headline rate of 3.6%.
  • Benchmark 10-year note yields rise to 1.618% in overnight trading ahead of $126 billion in auctions of 3-year, 10-year and 30-year paper starting later today.
  • With 88% of the S&P 500 reporting March quarter earnings, profits are expected to rise 50.4% from last year to a share-weighted $407.1 billion.
  • CDC data shows 115.5 million Americans have now been fully vaccinated against the coronavirus, with around 261.6 million doses administered as of Wednesday.
  • U.S. equity futures suggest a weaker open on Wall Street ahead of Redbook retail sales data at 8:55 am Eastern time.

Wall Street futures slumped lower Tuesday, with tech stocks extending their recent rout and the dollar limping to two-and-a-half month lows, as inflation concerns continue to grip global markets amid the post-pandemic recovery. 

The Labor Department will publish its benchmark reading on consumer price inflation Wednesday, with economists forecasting a year-on-year gain of 3.6%, fueled by the base effects of last year's oil price collapse and the nation-wide lockdowns imposed during the early months of the pandemic.

Debate rages, however, as to how long the inflation gains -- which are affecting everything from food prices to shipping costs to commodities -- will ultimate last, with Federal Reserve officials insistent that the increases will be 'transitory' and others taking market-based inflation gauges to the highest levels in a decade.

Last week's disappointing non-farm payrolls report, which included the biggest miss on headline job creation since 1998, also showed big year-on-year increases in hour wages that suggest employers will need to pay even higher salaries in order to entice workers and fill the millions of open positions that remain in the red-hot economy.

Factory gate inflation data from China, which showed the fastest rate of increases in three and a half years Tuesday, also suggested that inflation pressures could last longer than forecast. 

Tech investors, however, appear to be taking no chances, and are dumping stocks that are most-sensitive to interest rate increases based on the fact that the generate earnings and cash flows farther off in the future.

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The Nasdaq Composite, which has fallen some 5.2% from its April 26 peak, is price for another 280 point slump Tuesday, paced by extended pullbacks for benchmark heavyweights Apple  (AAPL) - Get Apple Inc. Report, Tesla  (TSLA) - Get Tesla Inc. Report, Facebook  (FB) - Get Meta Platforms Inc. Report and Microsoft  (MSFT) - Get Microsoft Corporation Report

Futures contracts tied to the Dow Jones Industrial Average, meanwhile are indicating a 320 point retreat while those linked to the S&P 500, the broadest measure of U.S. shares, are priced for a 58 point decline.

While inflation concerns have clipped the value of the U.S. dollar, which traded near the lowest levels in two-and-a-half months against its global peers Tuesday, benchmark 10-year Treasury bond yields remain well below their recent peak, nudging only modestly higher overnight to 1.618%.

Three key bond auctions this week, however, may test that resiliency, including a crucial $41 billion sale of 10-year notes on Wednesday that will come just hours after the April CPI data. 

Tech sell-offs in Europe and Asia pulled benchmarks lower in overnight trading, as well, with the Stoxx 600 tumbling 2.15% for its worst day since December, and the MSCI ex-Japan benchmark falling 1.6% for its biggest single-day decline in two months. 

Oil prices retreated, as well, with traders citing more questions over the pace of energy demand in India, which remains gripped by a surge in coronavirus infections, offsetting supply concerns linked to the cyber attack on the Colonial Pipeline.

WTI futures contracts for June delivery were marked 79 cents lower at $64.13 per barrel while Brent contracts for July, the global benchmark, eased 78 cents to $67.55 per barrel.