US futures are marginally lower ahead of the open on Wednesday, tracking similar moves in Europe after an uninspiring start to the week.
We’re seeing nerves creeping in after a spike in US Treasury yields that has seen the 10-year hit a 12-month high. It’s pulled back a little today but the trend appears to have accelerated in recent sessions and investors are going to be very wary.
The reflation trade has been good for stock markets as it’s driven by optimism around the recovery. But that will only continue to a point and if yields start rising at a rate considered too fast, sentiment will quickly change in stock markets.
There’s already been plenty of talk of taper tantrums this year so the seed has already been planted. We haven’t seen a pullback per se, in equity markets so far, but it is stalling. And further yield spikes could weigh on sentiment in the near-term and lead to losses in stock markets.
With plenty of US data to come, investors will likely be a little sensitive to the numbers. PPI numbers today are an example of that. Unexpected increases here could make investors very uneasy and fearful of higher inflation this year, exacerbated by President Biden’s massive stimulus plans that are on course to make their way through Congress largely intact.
Retail sales, industrial production, capacity utilization and other figures will also be released ahead of the open. But with fears seemingly rising around inflation, the Fed minutes later in the day may be of more interest, even if they are a little out of date at this point.