US open: Futures are cautiously higher, oil falls from highs

US futures

Dow futures +0.25% at 337350

S&P futures +0.35% at 4350

Nasdaq futures +0.35% at 14170

In Europe

FTSE +0.8% at 7399

Dax -0.6% at 14144

Euro Stoxx +0.5% at 3838

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Commodity prices in focus

US stocks are pointing to a cautiously higher start after solid gains in the previous session. All three major indices on Wall Street finish finished over 1.5% higher yesterday, boosted by Fed Chair Powell, with some of that optimism carrying over into today.

Fed Chair Powell signaled a 0.25% rate hike in March, taking a 0.5% off the table. He positively assessed the US economy and said that the Fed would continue watching inflation in light of the latest geopolitical developments.

Rising commodity prices are a big concern for the market, prompting fears of stagflation. The economic clinch point of this war is commodity prices or more specifically gas pices. Higher energy prices, slowing growth, and surging inflation are not a good outlook.

Today’s jobless claims data followed in the same vein as yesterday’s ADP payrolls, beating forecasts. Initial jobless claims rose by 215k, down from 232k in the previous week and ahead of projections. The labour market continues to perform well ahead of tomorrow’s non-farm payroll report.

Still, to come today, US ISM services PMI and Fed Powell is due to testify again.

Where next for the Nasdaq?

The Nasdaq has formed a series of lower highs and lower lows since the start of the year. The price fell to a low of 13050 and is extending the move higher. The bullish crossover on the MACD, combined with a move over psychological support at 14,000, keeps the buyers hopeful of further upside. However, resistance is being met at the two-month falling trendline at 14265. A break above here and the weekly high of 14300 could see buyers aim for 14650 February 16 high. Failure to re-take the trendline resistance could see the price fall back towards 14000 and 13700, the 28 February low.

FX markets USD rallies, EUR slumps lower.

USD is edging higher, although it has fallen from session highs but remains supported after Fed Powell confirmed a 25 basis point rate hike on safe-haven flows and upbeat data.

AUD/USD the Australian dollar is outperforming its major peers, supported by surging commodity prices and upbeat data. The Australian service sector rebounded in February as Omicron cases slowed. The service sector jumped to 57.4, upwardly revised from 56.4.

EUR/ trades under pressure, EUR/GBP fell to an almost 6-year low versus GBP, and EUR/USD dropped to a 21-month low as surging energy prices raised fears over the economic outlook for the region. Surging inflation and slowing growth look inevitable. Eurozone inflation hit 5.8% in February & PPI hit 27% in January. Add in the surge in gas prices, and there is no sign of inflation slowing. The ECB will need to hike, but the risk is that it chokes economic growth.

GBP/USD -0.23% at 1.3375

EUR/USD -0.37% at 1.1075

Iran news pulls oil off highs

Oil prices have taken a sudden turn after surging towards $120 amid fears that supply will be affected as Western countries ratchet up sanctions on Russia.

Earlier today Brent rose to its highest level since 2012, amid gains at 20% this week and 37% in just 30 days. Meanwhile, WTI surged to $116, a level last seen in 2008.

The gains come after the US imposed sanctions on Russia’s oil refining sector, which sparked speculation that Russian oil and gas could be next. Even though governments haven’t placed sanctions on oil and gas yet, companies voluntarily avoid Russian oil products. Russia is as important as Saudi Arabia on the global stage when it comes to oil and refined oil exports.

Yesterday, the OPEC+ group agreed to maintain the 400,000 bpd increase in March despite soaring prices.

However, since then, reports are coming in the Iran nuclear deal will be revived in days. This would mean that Iranian oil sanctions would be lifted and a million barrels of oil per day could be released into the market. This would certainly be a help towards offsetting slowing supply from Russia.

WTI crude trades -2.3% at $106.56

Brent trades -2.1% at $111.30

Looking ahead

15:00 US Factory orders

15:00 Fed Powell testifies

15:00 ISM Services PMI

16:30 BoC Governor Macklem speech