Stock futures tumble as recession alarm flashes red; Week Ahead: Fed decision in focus as inflation surges; Tesla seeking approval for 3-for-1 stock split; Gas prices top $5 a gallon; Biden readies Saudi Arabia visit and Bitcoin crashes to December 2020 low amid global rate surge
Here are five things you must know for Monday, June 13:
1. — Stock Futures Tumble As Recession Alarm Flashes Red
U.S. equity futures plunged lower Monday, while Treasury bond yields surged to the point where short-term rates signaled recession, as investors bet on faster and deeper rate hikes from the Federal Reserve following last week’s hotter-than-expected inflation data.
U.S. consumer prices rose by the fastest annual pace in more than four decades last month, the Commerce Department said, thanks in part to soaring energy and food prices. Core CPI, however, also marched higher, putting paid to any suggestion that inflation dynamics are set to ease over the coming months.
The impact, in part, pulled the University of Michigan’s benchmark reading of consumer sentiment to an all-time low, but also likely stiffened the Federal Reserve’s resolve in terms of near-term rate hikes, although a quiet period ahead of the Wednesday policy meeting has prevented officials from making any public comments.
The CME Group’s FedWatch tool, however, now suggests a 22.8% chance that the Fed will deliver a surprise 75 basis point rate hike later this week — up from just 3.1% a week ago — with a bets of a similarly-sized move in July also accelerating.
Should higher rates snuff out growth prospects in the world’s biggest economy, which is already flirting with recession following a 1.4% first quarter contraction, stocks are in for another notable decline, according to analysts at Morgan Stanley, who suggest the S&P 500 could fall to as low as 3,400 points before the current downturn in exhausted.
The surge in government bond yields lifted 10-year German paper to the highest levels since 2014, while pushing European stocks sharply lower, with the region-wide Stoxx 600 marked 1.95% lower in early Frankfurt trading.
Overnight in Asia, the Nikkei 225 fell 3%, the most in four months, while the yen tumbled to a fresh 20-year low of 134.19 against the U.S. dollar. The region-wide MSCI ex-Japan index was marked 2.83% lower heading into the final hours of trading.
In the U.S., benchmark 10-year Treasury bond yields leaped to 3.231% while 2-year notes hit 3.21%, the highest since 2007, causing a brief inversion of the yield curve in overnight trading.
On Wall Street, futures tied to the Dow Jones Industrial Average indicating a 605 point opening bell slump, pulling it to within touching distance of a 52-week low, while those linked the S&P 500 are priced for a 97 point decline. Futures linked to the tech-focused Nasdaq are looking at 365 point opening bell gain.
2. — Week Ahead: Fed Decision in Focus As Inflation Surges
The Federal Reserve’s June rate decision will form the lynchpin for both this week’s data calendar and the market’s likely direction heading into the summer months as inflation continues to accelerate and jobless claims quietly begin to increase.
Traders have priced in the near certainty of a 50 basis point increase in the benchmark Fed Funds rate when the decision is published at 2:00 pm Eastern Time on Wednesday, a move that will lift the target rate to a range of between 1.25% and 15%, but are also starting to bet an oversized hike of 75 basis points.
Both Fed Chairman Jerome Powell and a host of his colleagues have indicated their preference for a series of half-point increases over the coming months, but last week’s faster-than-expected reading for May inflation, which sped back up to a 40-year high of 8.6%, has reignited bets for a 75 basis point move in July.
Interestingly, the Fed’s rate decision — and Powell’s closely-watched press conference — will come just hours after a key reading of U.S. retail sales for the month of May, giving policymakers and rate traders an indication of the recent impact of higher prices on consumer spending. That data will take on an even greater significance following Friday’s University of Michigan consumer sentiment data, which fell to a record low in June amid surging gas prices and weakening growth prospects.
Powell is also set to speak at an economic event on Friday focused on the role of the U.S. dollar in international markets, with opening remarks set for 8:45 am Eastern Time.
Factory gate inflation data on Tuesday, as well as key reading of May housing starts on Thursday, will round out the week in terms of economic releases.
3. — Tesla Seeking Approval For 3-For-1 Stock Split
Tesla (TSLA) – Get Tesla Inc. Report shares slumped lower in pre-market trading as shares in the group were caught in the broader tech downdraft following the carmaker’s late-Friday proposal to vote on a three-for-one stock split later in the summer.
Tesla shareholders will vote on the proposal at the group’s annual meeting on August 4, with management pushing for the split in order to have “more flexibility in managing their equity” and make the shares “more accessible to our retail shareholders.” Tesla last split its stock on a five-for-one basis in August of 2020.
Amazon (AMZN) – Get Amazon.com Inc. Report completed its 20-for-1 split earlier this month, while Google parent Alphabet (GOOGL) – Get Alphabet Inc. Report will execute a similar-sized split on July 15.
Tesla will also ask its shareholders to approve changes to the tenure of board members, reducing it from three years to two, while shareholders will see a vote on various aspects of the carmaker’s union policies.
Tesla shares were marked 2.9% in premarket trading to indicate an opening bell price of $676.36 each, the lowest since May 24.
4. — Gas Prices Top $5 A Gallon; Biden Readies Saudi Arabia Visit
U.S. Gasoline prices topped the $5 per gallon mark for the first time on record this weekend, according to data from the AAA, with little prospects of easing heading into the peak summer driving months.
The national average price for a gallon of gas was pegged at $5.014 on Sunday, the highest nominal cost on record and a 63% from the same period last year, thanks to a combination of dwindling domestic supplies, surging summer demand and the impact of Russia’s war on Ukraine on global crude markets.
WTI crude is up more than 60% so far this year, and trading firmly over the $120 per barrel mark, as sanctions on Russian oil exports, OPEC’s reluctance to meaningly boost their collective monthly output and a shift in drilling investment from U.S. producers combine to lift global prices.
A lack of refining capacity in the U.S. — which is crucial to converting crude into consumer products such as heating oil and gasoline — is also keeping prices elevated. White House economic adviser Cecelia Rouse told CNN Friday that the Biden Administration is looking to work with oil companies and reduce the current refining backlog.
“It’s outrageous what the war in Ukraine is causing,’ President Biden told reporters on Saturday amid reports he’s planning to visit Saudi Arabia and meet with Crown Prince Mohammed bin Salman next month. “We’re trying very hard to make sure we can significantly increase the amount of barrels of oil that are being pumped out of the reserve we have.”
5. — Bitcoin Crashes To December 2020 Low Amid Global Rate Surge
Bitcoin prices retreated sharply in overnight trading, taking it back below the lowest levels since December of 2020, as surging interest rates reduced demand for the world’s biggest cryptocurrency.
Bitcoin prices were last seen 12.1% lower on the session at $23,952.65, a move that extends its year-to-date decline to around 47.4%. The moves prompted cryptocurrency lender Celsius Network to freeze withdraws from its deposit base.
Surging inflation, aggressive signaling on rate hikes by the Federal Reserve and other central banks, as well as rising bond yields and a resurgent U.S. dollar have all combined to add downward pressure on crypto assets even amidst wider adoption from various governments around the world to either add or compliment bitcoin into its national currencies.
The U.S. dollar index was marked 0.5% higher in early Monday trading, and within touching distance of its recent 20-year high, to change hands at 104.652 in overnight trading against a basket of six global peer currencies, marking the greenback’s year-to-date gain at around 9.05%.
Coinbase Global (COIN) – Get Coinbase Global Inc Report shares slumped 12% lower to $51.66 each in pre-market trading, while Robinhood (HOOD) – Get Robinhood Markets Inc. Report shares were down 4.1% at $7.49 each.