US open futures rise from session lows as labor costs fall

US Futures Contracts

Dow futures -0.5% to 33850

S&P Futures -0.30% to 4290

Nasdaq futures +0.1% to 13908

In Europe

FTSE -1.55% to 7433

Dax -2% to 15180

Euro Stoxx -2.3% to 4088

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Core PCE rises to 4.9%, spending falls, employment cost growth slows.

Stocks are poised for a mixed open after closely watched US PCE and personal spending data caught investors off guard.

The Core PCE, the Fed’s preferred measure of inflation, hit 4.9% year-over-year in December, down from 4.7% and beating the forecast of 4.8%. However, Personal Expenses came in at -0.6% MoM, Personal Income (0.3%) and Salary Costs (1%), both lower than expected.

The market’s knee-jerk reaction saw the US Dollar dip into the red as futures rallied from session lows and the Nasdaq threatens a positive open. While the initial reaction suggests the Fed’s fears are easing, the initial reaction doesn’t last forever.

The fact that the data comes after the Fed meeting undermines it. The weaker set of personal income and spending numbers are unlikely to derail the Fed from its decidedly hawkish trajectory. As a result, any pullback in the dollar and rally in the Nasdaq could be short-lived.

Fears about the pace at which the Fed might need to raise interest rates weighed on stocks throughout the week. Can the US economy cope with such a steep path to monetary policy normalization? Fears about the economy’s ability to absorb a rapid pace of monetary policy tightening have hit equities, although earnings so far have been broadly upbeat.

In other company news:

Apple posted record revenue in the last three months of the year at $123.9 billion, up 11% from a year earlier. Net profits of $34.6 billion were achieved, a 20% jump over the previous year and well above the forecast of $31.1 billion.

Supply chain issues cost the company $6 billion in missed sales, better than the expected $10 billion in supply.

iPhone sales were strong, accounting for 58% of total revenue, compared to 47% a year earlier, and the services business also performed well.

What’s next for the Dow?

The Dow Jones is consolidating capped higher at 34800 (weekly high) and lower at 33530 (Jan 25 low). The price is trading below the 20 and 50 SMA on the 4-hour chart and the RSI suggests further losses. Sellers will look for a move below 33550 to retest 33130. A spike below here could see sellers gain ground. Buyers will look for a move above 34800 to target 35600

FX Markets USD Reverses, AUD Drops Lower

After a strong start, the USD is down on the mixed data. Falling employment costs and the personal income sub-index ease fears about an aggressive Fed.

AUD/USD is trading sharply lower, underperforming its major peers. A triple whammy from a stronger US dollar, sentiment risk and falling gold prices hurt the Aussie which fell below key support at 0.7.

GBP/USD -0.01% to 1.3380

EUR/USD -0.09% to 1.1135

Oil games for 6and consecutive week of earnings

Oil prices are up and on track for a sixth straight week of gains as geopolitical tensions and supply issues dominate.

Oil prices were supported by fears that the Russian-Ukrainian crisis could disrupt energy supplies. While Russia has massed troops on the border, it says it has no plans to invade. Meanwhile, the United States has warned Ukraine that an invasion may be imminent. Ukraine is a key transit hub for gas and oil from Russia.

The strong USD keeps Brent at $90, ahead of the OPEC+ meeting next week. The group is not expected to increase its production quotas as it struggles to meet its current targets.

On the demand side, China, the world’s largest oil importer, could experience a 7% rebound in demand.

WTI Crude is trading up +1.3% at $87.28

Brent is trading +1.16% at $89.28

Learn more about oil trading here.

Look forward

15:00 Michigan US Consumer Sentiment

6:00 p.m. Number of Baker Hughes rigs

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