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Tech Stocks, Dow Futures Turn Higher, Track Bond Yields; Fed Inflation Reading Tops Forecasts

The Fed's preferred inflation gauge, the PCE price index, will give investors their first true indication of 2021 presses Friday as bond markets steady following their week-long rout.

The Friday Market Minute

  • Global stocks slump as bond rout spills over into equity markets following yesterday's spike in 10-year Treasury yields.
  • Asia stocks fall the most in 9 months as investors pull risk off the table in the wake of this week's bond market sell-off.
  • Ten-year Treasuries, which jumped to as high as 1.61% Thursday, are holding at 1.482% in overnight trading.
  • Five-year TIPS breakeven rates trade at 2.38%, while Fed Funds futures are fulling pricing in a January 2023 rate hike.
  • Commodity prices ease as the dollar rebounds from three-month lows, with WTI crude sliding below $63 per barrel.
  • Johnson & Johnson meets FDA advisory panel today for a hearing on its Emergency Use Authorization request for its single-shot coronavirus vaccine.
  • U.S. equity futures suggest firmer open Friday following fourth-quarter earnings from Foot Locker and a key inflation reading for the month of January at 8:30 am Eastern time.

Wall Street futures turned higher Friday, alongside a pullback in Treasury bond yields as investors looked to close out a volatile week in global stock markets triggered by concerns for faster inflation and higher interest rates.

Benchmark 10-year note yields, which spiked to as high as 1.61% in wild trading Thursday, settled-in at 1.468% in early New York dealing, while the U.S. dollar index rose 0.6% against a basket of its global currency peers to trade at 90.633.

Bond markets have largely dictated the direction of stock markets this week as traders re-set assumptions for growth and inflation-linked to improving economic data and the likely passage of President Joe Biden's $1.9 trillion stimulus bill, which faces a House vote later Friday.

In fact, futures markets are now pricing in a rate hike from the Federal Reserve in January 2023, much earlier than previously forecast, while the so-called "breakeven" rate for 5-year inflation-protected bonds are trading at 2.38% - firmly ahead of the Fed's 2% inflation target

Tech stocks - many of which are either cash-rich or growth-focused and thus sensitive to interest rate changes-- bore the brunt of the interest rate market surge, with the Nasdaq suffering its biggest single-day decline in four months yesterday following a poorly-received auction of $62 billion worth of 7-year notes that drew the weakest demand on record. 

With bond yields holding steady following key reading on inflation later this morning - the so-called core PCE price index, which is closely tracked by the Fed -- stocks are set for a weaker open Friday, with contracts tied to the Dow Jones Industrial Average indicating a modest 5 point decline.

Personal income surged 10% last month, Commerce Department data noted, with spending rising by a more-than-expected 2% on an inflation-adjusted basis. The core PCE index was up 0.3% on the month and 1.5% on the year, with both readings accelerating ahead of Street forecasts.  

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Futures contracts tied to the S&P 500, which is up 3.1% for the month, are indicating a 22 point dip while those linked to the Nasdaq Composite index are priced for a 145 point opening bell slide.

AT&T Inc.  (T)  shares were a notable pre-market mover, rising 0.2% after the wireless carrier and media group said it will sell around a third of its stake in DirecTV to buyout group TPG Capital for $1.8 billion.

Beyond Meat Inc.  (BYND)  shares were also on the move, rising more than 4% to $150.00 each after the plant-based food group agreed to multi-year supply deals with McDonald's Corp.  (MCD)  and Yum! Brands  (YUM) .

Johnson & Johnson  (JNJ)  shares will also be in focus today as the drugmaker prepares for its late-session hearing with the Food & Drug Administration on Emergency Use Approval authorization for its coronavirus vaccine.

Thursday, the FDA said the single-shot treatment was safe and effective in preventing both infection and the spread of the virus.

Overnight moves in global markets largely echoed Thursday's selloff on Wall Street, with Japan's Nikkei 225 tumbling 4% to close at 28,966.01 points and the region-wide MSCI ex-Japan benchmark slumping 3.36% for its biggest single-day decline in nine months.

European stocks were also in the red, although losses were held in check over the early hours of trading as bond markets steadied and investors eyed moves in U.S. equity futures. 

Commodity prices also eased, with oil falling more than 1% amid the U.S. dollar rebound to peg WTI crude futures for April delivery at just under $63 dollars per barrel, while copper prices -- riding their best month in four years -- slipped 2% to $9,266 per ton, still the highest since 2011.