U.S. equity futures edged lower Friday, following on from a leap in Treasury bond yields and accelerating bets on faster rate hikes from the Federal Reserve, as markets continue to reverberate from yesterday’s searing January inflation report.
The CME Group’s FedWatch tool now suggests an 88% chance of a 50 basis point rate hike when the Fed meets next month, up from just 33% last week, following data from the Commerce Department showing January inflation sped to an annual rate of 7.5%, the fastest since 1982.
St. Louis Fed President James Bullard has also said he wants the Fed’s base lending rate to be 1% higher by June, a move that would require three consecutive 25 basis point increases, while Goldman Sachs is forecasting seven hikes before the end of the year in order to tame inflation pressures that are unlikely to ease for many months.
The new calibrations hit tech stocks hard yesterday, hiving more than 2.1% from the Nasdaq Composite, with ripple effects felt in markets from Shanghai to Frankfurt in overnight trading.
Benchmark 2-year Treasury note yields bumped to 1.594% in early New York trading, following on from yesterday’s 21.4% leap, the largest single-day move for the 2-year note since June of 2009.
Higher up the curve, 10-year yields held above 2% — the highest since November 2019 — in the wake of yesterday’s inflation data and a solid $37 billion auction earlier in the week.
To compound the issue, the gap between benchmark 10-year and 2-year note yields has narrowed to just 40 basis points, the lowest since August of 20202 and a move towards ‘inversion’ that, along with Brent crude nearing $100 per barrel, has many economists now beginning to worry about recession.
The Atlanta Fed’s GDPNow forecasting tool, a real-time benchmark, suggests the U.S. economy is only growing at a 0.7% clip in the first quarter, down from 6.9% over the three months ending in December.
On Wall Street, futures tied to the Dow Jones Industrial Average are indicating a modest 60 point opening bell decline while those linked to the S&P 500 are priced for a 9 point retreat. Nasdaq Composite futures are indicating a further 40 point slide for the tech-focused benchmark.
Zillow Group (ZG) – Get Zillow Group, Inc. Class A Report shares were the most active mover in pre-market trading, surging more than 13% after the online real estate platform posted stronger-than-expected fourth quarter revenues and said it would wind-down its home flipping business earlier than forecast.
Ford (F) – Get Ford Motor Company Report and General Motors (GM) – Get General Motors Company Report shares were also on the move, and falling, after the carmakers said that trucker protests in Canada would cause further production delays at their north American plants.
Under Armour (UAA) – Get Under Armour, Inc. Class A Report, meanwhile, fell 1.6% after the sports apparel group posted stronger-than-expected fourth quarter earnings but noted that Covid-linked supply chain…
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