US Open: Stocks rise after last week's selloff

 

US futures

Dow futures +0.7% at 33040

S&P futures +0.84% at 4003

Nasdaq futures +1.15% at 12109

In Europe

FTSE +0.67% at 7939

Dax +1.34% at 15464

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• Stocks rise but hawkish Fed bets fuel losses across the month
• Tesla rises pre-market on higher output in Germany
• USD pauses for breath around a 7-week high
• Oil steadies as a stronger USD and recession fears offset Russia supply issues

Stocks to fall across February

US stocks are rebounding after steep losses last week, and as the soaring USD pauses for breath.

Stocks dropped sharply last week as the US dollar jumped over 1% as data revealed that inflation in US was hotter than expected, fuelling expectations that the Federal Reserve will need to raise interest rates higher and for longer in order to tame inflation.

Stocks are set to fall over 2% across February, as strong data has shown that the Fed still has much work to do to rein in inflation. Inflation is looking unlikely to cool sufficiently without a marked slowdown in the labor market, something which has so far proved elusive.

There have been some modest signs of a slowdown in growth in some areas of the economy, but not the jobs market.

Data today showed that US durable goods orders fell by a more than expected -4.5% YoY in January, after a downwardly revised 5.1% in December.

Looking ahead, US pending home sales are forecast to rise 1% MoM in January, down from 2.5% in December.

Federal Reserve official Philip Jefferson is due to speak again after saying that inflation may only come down very slowly in a speech last week.

Looking out across the week, the key focus is likely to be ISM services PMI on Friday.

Corporate news

Tesla is rising over 2% pre market after the EV maker said that its German plant is now producing 4000 cars per week this is three weeks ahead of schedule.

Pfizer is fooling premarket on reports that it will buy Seagen, the biogen company in a deal worth over $30 billion. Seagen trades almost 14% higher.

Berkshire Hathaway rises modestly after the firm reported a record annual operating profit even despite foreign currency losses and rising interest rates, which contributed to lower Q4 earnings in the US.

Where next for the S&P500?

Last week the S&P500 fell to a low of 3940, testing the 200 sma and the falling trendline resistance turned support dating back to the start of 2022. The price rebounded higher but is struggling around the 50 sma at 3985. A rise above here and the key 4000 psychological level is needed for the recovery to continue back above the rising trendline dating back to late October and 4050, the February 9 low. A rise above here could negate the near-term downtrend. Meanwhile, sellers could look for a fall below the 3940 level to create a lower low and extend the selloff towards 3885, the January 19 low.

FX markets – USD falls, GBP, EUR rise

The USD is edging lower but remains around a 7-week high as investors continue digesting the unexpected increase in US core PCE in January and the prospect of high-interest rates for longer.

EUR/USD is rising as the market’s price in more rate hikes into 2024. After a slew of stronger-than-forecast data, stickier-than-expected inflation and hawkish ECB messaging, the market is pricing in the terminal rate at 3.9% in February next year, up from the current 2.5% this year. Separately consumer confidence data improved in February, confirming the preliminary reading of -19.

GBP/USD is edging higher but remains below the key 1.20 level as investors look towards a key meeting between UK PM Rishi Sunak and EC President Ursula von der Leyen, who are expected to announce a new Brexit deal for Northern Ireland.

EUR/USD -0.48% at 1.0607

GBP/USD -0.58% at 1.1950

Oil edges lower

After ending last week flat, oil prices are modestly lower at the start of the new week as investors weigh up the prospect of higher interest rates for longer against jitters over supply from Russia.

News that Russia has halted exports to Poland via a key pipeline ahead of the already announced March supply cuts has the energy markets on edge. The move came after Poland delivered its first Leopard tanks to Ukraine and after Russia announced a 25% export cut from its western ports.

Meanwhile, those gains are being offset by the stronger US, which sits around a 7-month high after stronger US inflation data fueled expectations of the Fed hiking rates for longer.

A stronger USD makes oil more expensive for buyers with other currencies and often weighs on demand for oil.

 

WTI crude trades -0.3% at $76.16

Brent trades at -0.4% at $82.51

Learn more about trading oil here.

Looking ahead

15:00 US Pending Home Sales

15:30 Fed Jefferson Speech