US stock futures fell lower on Wednesday, while government bond yields rose and the dollar made more gains against its global counterparts as investors worry that improving consumer confidence, retail spending and job growth will continue to fuel domestic inflation and more interest rate hikes by the Fed.
Shares closed higher yesterday after better-than-expected second-quarter results from Walmart (WMT) and Home Depot (HD) in addition to what appears to be a solid recovery in GDP growth prospects, the Dow lifted the 34,000 mark for the first time since May.
The gains, which followed a July job burst with 528,000 new hires alongside 5.2% wage growth, also added to concerns that inflation numbers could accelerate again in the coming months.
An overnight rate hike by the Bank of New Zealand, the fourth in a row, and a scorching 10.1% reading for UK inflation in July, the highest in 40 years, reinforced those concerns, raising the likelihood of a new jumbo rate hike by the Fed was magnified. in September to about 48.5% overnight, according to the CME Group’s FedWatch.
Two-year government bond yields, the most sensitive to changes in interest rates, were 5 basis points higher at 3.308% in overnight trading, while 10-year bonds traded at 2.868%.
The minutes of the Federal Reserve’s July policy meeting likely point to smaller rate hikes in the second half of the year, with Chairman Jerome Powell and his colleagues content to focus on a wealth of data ahead of their next decision in September.
The July minutes, published at 2 PM GMT, will set out the rationale behind the Fed’s second consecutive 75 basis point rate hike, with the benchmark Fed Funds interest rate at a range of 2.25% to 2.5%. came. Powell said at the time that the Fed “wouldn’t hesitate” to make another major rate hike if the Open Markets Committee saw fit.
The US Treasury curve remains steeply inverted — a condition that has preceded nearly every recession for the past 25 years — even as the Atlanta Fed’s GDPNow forecasting tool suggests the economy is growing at a 2.5% clip.
The US dollar index, which tracks the greenback against a basket of six global peers, was up 0.03% at 106,608.
Retail sales will also be in the spotlight again on Wednesday, as the Commerce Department releases official July data ahead of the start of trading, likely illustrating the impact of falling domestic gas prices.
Total retail sales are likely to be up about 0.1% this month, economists suggest, as total numbers fall from the June peak of $680.6 billion amid continued decline in gasoline prices. Core retail sales, which remove the impact of volatile components such as food and energy, could actually contract by about 0.1%.
In other markets, oil prices extended their recent decline, bringing US crude into sight of a six-month low ahead of the Energy Department’s weekly data on domestic crude oil inventories at 10:30 a.m. GMT.
WTI crude oil futures for September delivery were 22 cents lower at $86.44 a barrel, while October Brent contracts, the global benchmark, fell 36 cents to $91.98 a barrel.
In the overseas markets, European equities were also lower, with the Stoxx 600 falling 0.33% in trading in Frankfurt, while in Asia the region-wide MCSI ex-Japan index rose 0.16% overnight and the Nikkei 225 rose 1.23% to recapture the 27,000. points level for the first time in seven months.
On Wall Street, futures pegged to the S&P 500 point to a 36-point drop in the opening bubble, while those on the Dow Jones Industrial Average are priced at a 205-point pullback. Futures linked to the tech-focused Nasdaq point to a 130-point drop.
Target (TGT) shares fell 3.5% after posting much weaker-than-expected gains in the second quarter as deep discounts were introduced to shift excess inventory to the big box retailer’s bottom line.
Bed, Bath & More (BBBY) Shares, meanwhile, rose again on Wednesday as the meme stock favorite extended gains after a bullish options bet from GameStop (GME) chairman Ryan Cohen.