U.S. equity futures edged cautiously higher Tuesday, while the dollar breached a fresh two-year high against its global peers and Treasury bond yields extended their recent surge, as investors braced for what could be a market-shaking reading of inflation in the world’s biggest economy.
The U.S. dollar index, which tracks the greenback against a basket of six global currencies, was marked 0.25% higher in overnight trading at 100.185, the highest in more than two years, as traders re-set currency levels ahead of the Federal Reserve’s signaling on higher interest rates.
Benchmark 10-year notes followed suit, rising to 2.817% in European dealing, the highest since 2018, pulling 10-year German bund yields — which traded with a negative yield late last year — to a 2015 high of 0.88%.
The White House, in fact, cautioned late Monday that Americans should be ready for an “extraordinarily elevated” level of inflation from last month’s reading, which is due today at 8:30 am Eastern time, thanks in part to the impact on food and energy prices from Russia’s war on Ukraine.
U.S. crude futures hit a ten-year high of $123.70 per barrel last month in the immediate wake of Moscow’s invasion and the threat of sanctions on energy exports, while wheat and other food prices leaped on reports of damaged crops and grain embargoes linked to the conflict.
And with rents, used car prices and healthcare costs — which make up a massive portion of the underlying core CPE reading — continuing to rise, analysts are looking for a year-on-year inflation rate of 8.4% when the Commerce Department publishes its formal estimate at 8:30 am Eastern time, the highest since at least 1981.
“We expect a large difference between core and headline inflation … reflecting the global disruptions in energy and food markets,” White House Press Secretary Jen Psaki said Monday. “
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Inflation pressures, which are likely to have surged to the highest levels since 1981 last month, have dictated trading on Wall Street for much of the past week, hammering tech and growth stocks and pulling the broadest measure of global stocks, the MSCI World Index, to the lowest level in a month.
Little relief appears in sight: the CME Group’s FedWatch tool pegs an 85.4% chance of a 50 basis point rate hike from the Fed in May, followed by a 54.1% chance of a follow-on move in May and 48.9% chance of a third 50 basis point hike in July.
On Wall Street, futures contacts tied to the Dow Jones Industrial Average indicating a modest 10 point opening bell gain while those linked the S&P 500, which is down 7.4% for the year, are priced for a 3 point gain. Futures linked to the tech-focused Nasdaq are looking at a modest 15 point opening bell bump.
In terms of individual stocks, Veru (VERU) – Get Veru Inc Report shares soared higher pre-market trading, potentially adding $200 million to the value of the Miami-based biotech, following the drugmaker’s plans to seek Emergency Use Authorization from the U.S. Food & Drug Administration for its newly-developed Covid treatment.
CarMax (KMX) – Get CarMax, Inc. Report fell 5% after it posted weaker-than-expected fourth quarter earnings Tuesday as retail used car sales declined amid surging prices, waning consumer confidence and the expirations of Covid benefits from the federal government.
Cisco Systems (CSCO) – Get Cisco Systems, Inc. Report shares moved lower after analysts at Citigroup cut their rating on the network equipment maker to ‘sell’ while slashing their price target by more than 30%.
Citi analyst Jim Suva loped $20 from his Cisco price target, which now sits at $45 per share, while Morgan Stanley cut their price target on the group to $59 per share in a pair of analysts notes published early Tuesday.
Starbucks (SBUX) – Get Starbucks Corporation Report shares edged lower in pre-market trading following a downgrade to ‘neutral’ from Citigroup analyst Wendy Nicholson, who also slashed her price target by $29 to $91 per share.
Starbucks shares have fallen more than 11% since interim CEO Howard Schultz moved to suspend share buybacks at the world’s biggest coffee chain, a decision several analysts have said could investment and capital allocation changes that could trim near-term earnings growth.