JULY 14 Dow futures fall more than 300 points as traders weigh potential for big rate hikes
Stock futures fell Thursday as traders assess the possibility of even tighter U.S. monetary policy on the back of a hot inflation report. Traders also looked ahead to earnings from major U.S. banks.
Dow Jones Industrial Average futures shed 335 points, or 1.1%. S&P 500 futures were 1.1% lower, and Nasdaq 100 futures were down 1%.
The consumer price index rose 9.1% on the year in June, higher than a Dow Jones estimate for an 8.8% year-over-year increase. Core CPI, which excludes volatile prices of food and energy, was 5.9%, also ahead of a 5.7% estimate.
In addition, the Beige Book, released Wednesday by the Fed showed worries of an upcoming recession amid high inflation.
The CPI report also impacted treasuries, sending the 2-year Treasury yield up nine basis points to about 3.138% while the yield on the 10-year Treasury fell about 4 basis points to 2.919. An inversion of the two is a popular signal of a recession.
The report also opened the door for a big Federal Reserve rate increase later this month, with the fed funds futures market now pricing in a hike of as much as 1% — or 100 basis points.
“The takeaway for investors is that Fed policy remains data-dependent and the central bank will continue on an aggressive tightening path until inflationary pressures peak decisively,” strategists at BCA Research wrote in a note. “Persistent price pressures call for another jumbo hike at the July 26-27 FOMC, but there is still room for the data to improve before the September meeting, 8 weeks later.”
Earnings season continues Thursday with JPMorgan Chase and Morgan Stanley scheduled to report before the bell on Thursday.
Weekly jobless claims and the June producer price index report, which measures prices paid to producers of goods and services, will also be released Thursday. Both reports will give further insight into the economy.