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Stocks’ positive start fading

Article By: ,  Market Analyst
January 3, 2023 2:30 PM

US index futures tracked Europe higher to open well into the positive territory, but at the time of writing some of those gains were evaporating. The big news from an individual company was Tesla delivering a record 1.3 million vehicles in 2022, but the 40% jump still fell well short of the carmaker’s goal to grow deliveries by around 50% each year. As traders watched the share price of Tesla opening lower, indices were trading higher on the session. Questions remain as to whether the gains can hold given concerns over a recession and further policy tightening by the Fed and other major central banks.

European markets had started positively earlier in the day. Sentiment was boosted in part because of receding concerns over a gas shortage thanks to a milder start to the winter, reducing demand for heating. Gas futures continues to plumet, with European gas futures trading at levels last seen before the war in Ukraine started.

Overall, much of the issues we faced in 2022 are going to be with us well into 2023, including high levels of inflation and rising interest rates. A recession seems unavoidable. Traders know that after a big rebound starting in October for US and global indices, much of the positivity about the Fed pivoting to a less hawkish stance has now been priced in. So, the risks remain tilted towards the downside despite today’s stronger start for global stock markets.

 

Keep an eye on the already-underperforming Nasdaq for shorting opportunities, as it tests key resistance here around 11,000 to 11,100 area:

 

In terms of the immediate term, investors will be eying the Fed minutes and the December US jobs report to provide direction for risk assets.

 

FOMC meeting minutes (Wednesday at 19:00 GMT)

 

This year’s first important macro data is likely to be the minutes of the FOMC’s December meeting. At that meeting, the FOMC reduced the pace of tightening to 50 basis points but appeared more hawkish than expected, in that policymakers projected a higher terminal interest rate and indicated that monetary policy will remain contractionary for longer. The minutes should reveal more details, which should set the tone for next few days at least.

 

US Non-Farm Payrolls (Friday at 13:00 GMT)

 

The first week of January could end with a bang, if US employment data shows a major surprise. The headline non-farm payrolls number has beaten expectations in each of the previous 8 months, with the prior months continually being revised higher. US jobs market remains hot, and while that’s the case, the Fed will be encouraged to keep its policy tight. If we get another set of stronger-than-expected numbers, then this could provide renewed support for the dollar.

 

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