Opening Bell: U.S. Futures Slide On Hawkish Fedspeak; Oil Falters

Key Events

Contracts on the Dow, S&P, NASDAQ and Russell 2000 declined in trading on Thursday, and European stocks fluctuated as the market attempted to price in the odds of monetary policy tightening by the Federal Reserve and the effect it could have on the economic recovery after pandemic-related lockdowns.

Oil retreated on the possibility of Iranian supply returning to markets.

Global Financial Affairs

Vice Chairman for Supervision of the Federal Reserve Randal Quarles said yesterday that the Fed needs to start considering reducing its massive QE program, if the US economy is to continue expanding.

All US benchmarks slipped after the notion of tightening was suggested, resuming the seesaw of worries about inflation, interest rates and the economic recovery.

In Europe this morning, gains in miners and travel stocks were battling against a drop in healthcare-related stocks, causing the pan-European STOXX 600 to whipsaw.

If the price dips below 444.00, it will have completed an hourly H&S top, which could push prices back toward the bottom of a broadening top at the low 400’s. If that breaks, we could see a deeper correction.

The world’s largest airliner manufacturer, Airbus Group (PA:AIR) opened more than 3% higher after announcing to suppliers that it will raise output over the next 2 years. The stock climbed as much as 6.5% and settled at a 5.8% advance, as of the time of writing.

The price found resistance by the February and April highs. Since the Apr. 16 close it has been trading flat, but today it reached the highest level since Mar. 4, 2020.

Earlier, Asian benchmarks were uneven, ahead of US economic data releases today which will provide details on employment, economic growth and consumer spending and offer further clues about the Fed’s policy path.

China’s Shanghai Composite and the yuan both climbed for the fourth day, after the Asian nation held its first trade talks with the US since President Joseph Biden took office.

Value stocks led a rally on Wall Street yesterday. Energy and retailers outperformed in the S&P 500, while technology remained flat. The Russell 2000—host to domestic firms likely to benefit the most from an economic recovery—outperformed, gaining 2%. The 125-year-old Dow Jones Industrial Average fluctuated. Banks—one of the sectors to gain the most with higher interest rates—rose after the chief executive officers from the largest lenders testified before Congress.

Global stocks surged along with a rapid Treasury selloff, pushing yields on the 10-year Treasury note to pre-pandemic levels. However, Quarels' assertion that "we need to remain patient" before any policy shifts occur helped push yields back down.

Rates are struggling against the April-May lows, as they try to return to the top of a falling channel.

The dollar pared yesterday’s rebound. It is being squeezed between conflicting forces.

The greenback was congesting toward the apex of a falling wedge, as it tests the base of a preceding, rising wedge, which itself broke out from a massive falling wedge since the 2020 peak. An upside breakout of the current, falling wedge (red) will confirm that the USD will continue to advance following the massive falling wedge since the 2020 top.

Gold was flat.

It continued to congest, as it struggles to free itself from its current, narrow rising channel. Notice how spiked the current advance is, compared to the more tempered, much broader falling channel since the 2020 record peak. A downward correction is due.

We have reversed our previous bearish call on Bitcoin, which reached our target, more than halving in value.

However, a bearish pennant is going to test that call. If the price closes below $29,000, we will once again reverse our position.

Oil fell away from the top of an ascending triangle.

The prospect of an agreement between the US and Iran on a nuclear deal which will result in sanctions being lifted and a return of Iranian oil to the market, causing a glut. For traders, this has overshadowed the view that summer driving and a restarting economy will absorb the oversupply. The OPEC+ monthly meeting begins on Monday; some of these issues will likely be critical agenda items.

Up Ahead

• On Thursday US pending home sales and durable goods will be released.
• Japanese employment figures and Tokyo CPI are released tonight at at 7:30PM EST, 7:30AM Friday in Tokyo. 

Market Moves

Stocks

• The STOXX 600 was little changed
• Futures on the S&P 500 fell 0.3%
• Futures on the NASDAQ 100 fell 0.4%
• Futures on the Dow Jones Industrial Average fell 0.2%
• The MSCI Asia Pacific Index was little changed
• The MSCI Emerging Markets Index was little changed

Currencies

• The Dollar Index fell 0.1%
• The euro was little changed at $1.2203
• The Japanese yen was little changed at 109.10 per dollar
• The offshore yuan rose 0.1% to 6.3723 per dollar
• The British pound was little changed at $1.4115

Bonds

• The yield on 10-year Treasuries was little changed at 1.58%
• Germany’s 10-year yield was little changed at -0.20%
• Britain’s 10-year yield advanced one basis point to 0.76%

Commodities

• Brent crude fell 0.6% to $68 a barrel
• Spot gold rose 0.2% to $1,900 an ounce