Friday June 18th

18-06-2021

Dow futures fall 300 points as blue-chip average heads for worst week since January

U.S. stock index futures fell on Friday as the S&P 500 and the Dow Jones Industrial Average are on pace to post a losing week after the Federal Reserve’s latest policy update. Futures for the Dow lost 320 points. S&P 500 futures were lower by 0.7% and Nasdaq-100 futures dipped 0.6% Futures extended their losses as St. Louis Fed President Jim Bullard said on CNBC that it was natural for the Fed to tilt a little “hawkish” this week and that the first rate increase from the central bank would likely come in 2022. The blue-chip Dow has lost 1.9% week to date, on pace for its worst week since January, as the Federal Reserve on Wednesday afternoon added two rate hikes to its 2023 forecast and increased its inflation projection for the year, The S&P 500 has fallen 0.6%. But the Nasdaq has gained 0.65% on the week. The decline in stocks came as the Fed’s actions caused a drastic flattening of the so-called Treasury yield curve where the yields of shorter-duration Treasurys, like the 2-year note, rose, while longer duration yields, such as the benchmark 10-year, fell. The retreat in long-dated bonds reflects less optimism toward economic growth, while the jump in short-end yields shows the expectations of the Fed raising rates. This phenomenon is hurting bank stocks particularly as bank earnings could take a hit when the spread between short-term and long-term rates narrows. Goldman Sachs shares fell more than 1% in premarket trading Friday, while JPMorgan and Morgan Stanley also traded in the red. Fed Chairman Jerome Powell said on Wednesday that officials have discussed tapering bond buying and would at some point begin slowing the asset purchases. “Investors may be interpreting the Fed’s hawkish tilt Wednesday as a sign that an extended US post-pandemic economic expansion may be a bit harder to achieve in a potentially emerging environment of less accommodative monetary policy,” said Goldman Sachs’ Chris Hussey in a note. Most commodities prices rebounded a bit on Friday following sharp declines this week as China attempts to cool rising prices and the U.S. dollar strengthens. Futures prices for copper, gold, and platinum rebounded Friday, but were still down big for the week. The Friday bounce in prices helped push some materials stocks higher in early trading. Newmont gained nearly 2% in premarket trading. Chip stocks, which have had a good week, looked set to continue their run on Friday with shares of Nvidia higher by about 1% in premarket trading. Adobe shares gained about 3% in premarket trading after earnings and revenue topped estimates. Friday also coincides with the quarterly “quadruple witching” where options and futures on indexes and equities expire. Many expect trading to be more volatile in light of this event. Shares in Asia-Pacific were mixed on Friday as investors monitored moves in the commodities space after prices fell sharply on Thursday. In Japan, the Nikkei 225 closed 0.19% lower at 28,964.08 while the Topix index slipped 0.87% to end the trading day at 1,946.56. South Korea’s Kospi rose about 0.1% on the day to 3,267.93. Mainland Chinese stocks closed mixed, with the Shanghai composite marginally lower at 3,525.10 while the Shenzhen component advanced 0.769% to 14,583.67. Hong Kong’s Hang Seng index rose about 0.6%, as of its final hour of trading. Oil prices fell for a second consecutive day on Friday as the U.S. dollar soared on the prospect of interest rate hikes in the United States, but were nevertheless on track to finish the week flat — only slightly off multi-year highs. Brent crude futures were down 50 cents, or 0.7%, at $72.58 a barrel, extending a 1.8% decline on Thursday. U.S. West Texas Intermediate (WTI) crude futures were down 38 cents, or 0.5%, at $70.66 a barrel, after retreating 1.5% on Thursday. On Wednesday, Brent settled at its highest price since April 2019 while WTI settled at its highest since October 2018. Gold rose 1% on Friday as a pause in the dollar’s rally helped bullion claw back some ground from a sharp slide in the previous sessions driven by the U.S. Federal Reserve’s hawkish tilt, which put it on course for its worst week in nearly nine months. Spot gold climbed to $1,790.59 per ounce by 0908 GMT, but was down 4.5% for the week. U.S. gold futures gained 1% to $1,791.70.