US open: Futures rise cautiously ahead of a critical week

US futures

Dow futures +0.3% at 33550

S&P futures +0.3% at 3945

Nasdaq futures +0.3% at 11600

In Europe

FTSE -0.27% at 7449

Dax -0.32% at 14317

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All eyes on Tuesday’s inflation data & Wednesday’s FOMC

US stocks are set to open modestly higher on Monday after losses across the previous week and as investors look ahead to a critical week that will see the release of US inflation data and the final Federal Reserve interest rate decision of the year.

Stocks fell last week, with the Dow Jones dropping 2.8% in its worst weekly performance since September after stronger-than-expected data raised concerns over the Fed’s ability to slow down the pace of aggressive rate hikes, as guided for by fed chair Jerome Powell in a speech at the end of November.

The market is currently pricing in a 75% probability of a 50 basis point rate hike and a 25% chance of a 75 basis point rate hike. The Federal Reserve’s rate decision will come after the release of U.S. consumer price inflation data on Tuesday, which is expected to cool to 7.3% from 7.7% in October. The inflation data is unlikely to deter the Fed from a 50 basis point hike this month. However, cooling inflation could raise the chances of a 25 basis point rate hike in January.

Corporate news:

Microsoft will be in the spotlight after announcing that it will take a 4% stake in the London Stock Exchange Group as part of a new strategic partnership.

Rivian falls pre-market after pressing pause on its joint venture with Mercedes-Benz.

Where next for the Nasdaq?

The Nasdaq has been trading range bound since mid-November, capped on the upside by 12,120 and on the lower side by the 50 sma at 11,370. The RSI is neutral at 50, giving away a few clues. The price has slipped below year long falling trend line. A rise above the trendline at 11,650 is needed before buyers can test resistance once again at the December high of 12,120. A move above here exposes the 100 and 200 sma at 12,450, with a rise above the latter significant because the price has traded below the 200 sma since February. On the downside, sellers will be looking for a break below 50 sma to bring 11,000, the June low, into play ahead of 10600, the November low.

FX markets – USD rises, GBP jumps.

The USD is falling, paring gains from last week as investors look ahead to the Federal Reserve interest rate decision on Wednesday. The Fed is widely expected to raise interest rates by 50 basis points, a downshift from the 75 basis point hikes at the past four meetings.

EURUSD is heading higher as the market mood improves and despite a quiet economic calendar today. This is set to change tomorrow with the release of German inflation figures and German ZEW economic sentiment data ahead of the ECB rate decision later in the week,

GBP/USD trades higher after the UK economy rebounded faster than expected in October. GDP rose 0.5% MoM in October after contracting 0.6% in September owing to the Royal funeral. Even so, the UK economy is still expected to tip into recession in the current quarter.

GBP/USD  +0.20% at 1.2291

EUR/USD  +0.3% at 1.0560

Oil extends declines

Oil prices are heading lower after falling almost 11% last week ask, as concerns over a slowing global economy offset supply concerns coming from the closure of a key pipeline and amid Russian threats of a production cut.

President Putin said he could cut production and refuse to sell oil to countries imposing a price cap on Russian oil, which hurt the supply outlook. Furthermore, news that the keystone oil pipeline leak in the USA remains unrepaired with no timeline as to when operations will resume is also hurting supply prospects.

Oil markets continue to digest the news that China, the world's largest oil importer, is loosening strict Covid policies. However, with infections in China continuing to rise sharply, the market remains nervous over whether China will proceed with exiting the economically damaging policies if hospitalisations keep rising.

WTI crude trades -0.4% at $71.00

Brent trades at -0.6% at $75.85

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Looking ahead

19:25 BoC’s Macklem speech