US open: Stocks rise on earnings optimism & Fed rate hike slowdown bets

US futures

Dow futures +0.22% at 33450

S&P futures +0.17% at 3978

Nasdaq futures +0.17% at 11639

In Europe

FTSE +0.47% at 7805

Dax +0.22% at 15064

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Debt ceiling dance in focus

US stocks are set to open modestly higher on Monday after booking losses across last week as investors continue weighing up corporate earnings, the Fed’s next move, and as debt ceiling talk continues.

While earnings are few and far between today, investors continue digesting Friday’s corporate results. Better-than-expected numbers from Netflix have boosted optimism that earnings, particularly tech earnings, may come in better than feared. That said, ongoing job cuts across the sector highlight the need to rein in costs. Tesla and Microsoft are the big names in focus this week.

Expectations of the Federal Reserve raising interest rates at a slower pace have boosted stocks today and overshadowed recession fears which dragged equities lower last week. Weaker than forecast retail sales and industrial output data last week raised tempered optimism last week, even as inflation shows signs of falling.

The Fed is expected to hike rates by 25 basis points in February, down from a 50 bps hike in December. However, with the Fed now in the blackout period ahead of the February meeting, attention will be on data and the debt ceiling dance on Capitol Hill.

The US government hit the $31.4 trillion borrowing limit last week. The Republicans want the government to cut spending before they are willing to approve a higher debt ceiling. It is worth noting that a similar demand a decade ago in 2011, caused chaos in the financial markets.

The economic calendar is light today. US Q4 GDP and core PCE, the Fed’s preferred gauge for inflation, will be in focus on Thursday and Friday, respectively.

Corporate news

Salesforce rises pre-market after activist investor Elliot Management buys up a multi-billion-dollar stake in the business.

Spotify has become the latest tech firm to announce big layoffs. Spotify will cut 6% of the workforce.

Where next for the S&P500?

After rising from 3820, the S&P500 is trading range bound, having failed to rise above the multi-month falling trendline. The price currently trades sideways, caught between the 100 & 200 sma and capped on the downside by 388, last week’s low, and 4000, last week’s high, and the falling trendline resistance. The RSI remains over 50, keeping buyers hopeful of further gains. Buyers will look for a rise over 4000 to test 4145 the December high. Sellers could look for a fall below 3820 for a steeper decline towards 3775, the December low.

FX markets – USD rises, EUR rises

The USD is rising cautiously higher after a weak start to the week and after steep falls across the previous week.  The greenback has risen off a 9-month low as the Fed enters the blackout

GBP/USD is falling after briefly hitting its highest level in 7 months, as the upbeat start to the week fades. The pound found support last week after sticky inflation data & a resilient jobs market. There is no high impacting UK economic data today. PMI data is due tomorrow.

EUR/USD briefly rose above 1.09 to a fresh 9-month high after hawkish ECB chatter. ECB governing council member Knot Klass indicated that the ECB would raise interest rates by 50 basis points at the next two meetings, with further rate hikes to come. ECB’s Peter Kazimir, sent a similar message but at least two more 50 basis point rate hikes when needed and also acknowledged that the eurozone economy was faring better than expected a few months ago.

GBP/USD -0.23% at 1.2380

EUR/USD +0.2% at 1.0878

Oil rises as China’s holiday begins

Oil prices are rising, extending gains from the previous week, as the reopening of the Chinese economy continues to boost the demand outlook for oil.

Oil trading volumes in Asia were slower due to the Lunar New Year holiday, but the mood remained upbeat as China's economic reopening is expected to drive oil prices higher.

While a pick-up in trouble is expected across the coming weeks, high-frequency data shows 22% rise in road traffic congestion this year compared to a year earlier. The rise in China’s traffic as the lunar new year holiday begins bodes well for fuel demand ahead of the two-week holiday.

Last week the IEA warned that the oil demand could reach a record high ask the Chinese economy reopens and rebounds.

WTI crude trades +0.6% at $82.34

Brent trades at +0.6% at $88.35

Learn more about trading oil here.

Looking ahead

15:00 EZ consumer confidence