A bad inflation report has sent bonds spiraling lower, and stocks are set to follow.
consumer price index
gained an unexpected 0.7% -- well above the 0.4% that economists had expected. The core, which excludes the often volatile food and energy sectors, added 0.4%. Here, economists had expected a 0.2% gain.
With the yield on the 30-year looking like it's heading toward 6%, it's going to be an ugly morning on Wall Street.
"This is for real," said Tony Crescenzi, chief bond market strategist at
Miller Tabak Hirsch
. "There's selling all around. It's very hard to defend a bullish view at the moment."
The news increases the chances that the
Federal Open Market Committee
will start getting hawkish at its meeting next Tuesday.
"The Fed could shift to a tightening bias as early as Tuesday," said Crescenzi. "They need to respond to this swiftly. If they don't show themselves to be decisive now, it could hurt their credibility. They need to show vigilance."
For a long time now, people have said the only thing that could derail the bull market in stocks was a
that was tightening. Now stocks are set for a big drop at the bell.
"It looks like they're going to rough them up pretty bad on the open," said Jim Benning, a trader at
. Benning said he "wouldn't be surprised to see some buyers come in" later in the day as people try to buy on the dip. But if the Fed really is moving toward a rate hike, that could be a bear trap.
At 9 a.m. EDT, the
futures were off 17, putting them more than 14 below fair value and indicating a sharp drop at the open. The 30-year Treasury was down 1 21/32 to 91 9/32, lifting the yield to 5.87%.
With earnings season just getting under way, Tokyo traders struck a cautious stance. The
gave back 40.86 to 16,810.39.
As expected, Hong Kong stocks slumped as shares from
placement Tuesday came to market. The
fell 198.15, or 1.5%, to 12,855.52.
European markets were all lower in the wake of the CPI. In Frankfurt, the
was off 2.93 to 5245.09. In Paris, the
was down 74.47, or 1.6%, to 4341.41. In London, the
was down 117.6, or 1.8%, to 6339.
Friday's Wake-Up Watchlist
- Farm and construction equipment makers
Case (CSE) and
New Holland (NH) - Get Report are in merger talks,
The Wall Street Journal and the
Financial Times report, citing people familiar with the situation.
TSC has been reporting on unusual activity in Case options
week. Case traded up 1 7/16 at 44 1/4 in premarket activity.
3Com (COMS) could be taken over by year-end, Gene Marcial's oft-mistaken Inside Wall Street column in the new issue of
Business Week claims, naming
Ericsson (ERICY) and
Lucent (LU) as possible acquirers. 3Com traded up 1 13/16 at 28 1/2 in premarket activity.
American Home Products (AHP) is early-stage talks to settle thousands of lawsuits brought by people who took its diet drugs
Journal reports, citing lawyers involved. The drugs were recalled in September 1997 after being linked to possible heart-valve damage.
In other news (earnings estimates from
@Home (ATHM) - Get Report traded up 8 11/16 at 158 after
last night announcing a strategic pact with
Microsoft (MSFT) - Get Report.
Fred's (FRED) reported first-quarter earnings of 24 cents a share vs. 19 cents last year, in line with expectations.
Honda (HMC) - Get Report reported better-than-expected fourth-quarter results. The company reported a 4.4% rise in pretax profit from operations. According to
Bloomberg, analysts expected a 5.5% drop.
Key Energy (KEG) - Get Report reported a third-quarter loss of $1.03 a share excluding charges, vs. a 35-cent profit last year. The consensus estimate was for a $1.18-a-share loss.
TRW (TRW) adjusted first-quarter earnings to reflect its acquisition of
LucasVarity. The company revised results to show a loss of 24 cents a share, reversing the original 83-cent profit.
Vencor (VC) - Get Report reported a first-quarter loss of 18 cents a share, a penny wider than expected, reversing a 39-cent profit last year.