US open: Risk off resumes, S&P500 heads back towards correction territory

US futures

Dow futures -0.85% at 34095

S&P futures -1.6% at 4345

Nasdaq futures -2.1% at 14209

In Europe

FTSE +0.7% at 7360

Dax +0.2% at 15082

Euro Stoxx +0.5% at 4073

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Nasdaq underperforms on hawkish Fed fears

After a roller coaster start to the week, US stocks are set for a lower open on Tuesday, as the Fed kick off the 2-day FOMC meeting.

The fed fund futures are pricing in a 25-basis point hike in March followed by three further rate hikes across the year. However, the Fed has also suggested that it may look to start reducing its balance sheet as the same time a hiking. The prospect of this unprecedented tightening move is unnerving the markets. Will the US economy be able to cope with such a steep path to policy normalization?

Expectations of a more hawkish Fed is driving the rotation out of high growth tech stocks, with the Nasdaq set to underperform, again.

In addition to Fed fears, geopolitical concerns remain amid worries that Russia could invade Ukraine imminently.

In corporate news:

earnings season continues to ramp up with big names such as Johnson & Johnson, GE and all reporting.

IBM are set to jump higher on the open after reporting the strongest sales growth in 10 years. Strong demand for the cloud services boosted revenue 6.5%. This was the first earnings release since spinning off Kyndryl.

Where next for the Dow Jones?

After reaching an all time high of 36919 at the start of the year the Dow has been trending lower. The 20 sma trades below the 50 sma and the RSI is bearish suggesting that there could be more losses. The price has rebounded off the 2022 low of 33145 reached yesterday and is consolidating above 40,000 the round number and December low, and below the 20 sma at 34520. Sellers would be looking for a move below 33919 for further declines to 33145 the 2022 low. Buyers might look for a move above the 20 sms and 34700 the December 20 low for further upside.

FX markets USD rises, EUR falls below 1.13.

The USD is rising, boosted by safe haven flows and as investors position themselves for the start of the Fed meeting which kicks off today. With inflation at a 4 decade high the Fed could adopt a more hawkish stance.

EUR/USD is trading lower, extending losses from the previous session. Investors continue to monitor the Russia Ukraine conflict. German IFO sentiment was a mixed bag. On the one hand the business climate index improved in January, rising after half a year of declines. amid hope that supply chain bottlenecks would start easing. On the other hand, the current assessment index declined.

GBP/USD -0.25% at 1.3454

EUR/USD -0.52% at 1.1267

Oil pares some of yesterday’s losses

Oil prices are rebounding on Tuesday after falling to the lowest level in a week in the previous session. Fears that geopolitical tensions in the middle east and in eastern Europe could result in tighter supply is lifting the price higher.

Russia has grown the presence of its troops on the Ukraine boarder to 100,000, with the West warning of an invasion imminently. Meanwhile, Yemen’s Houthis launched a missile attack on UAE, but was intercepted by US interceptors.

These rising tensions and potential disruptions come at a time when supply concerns were already building in the market as OPEC+ members fail to increase production to upwardly revised levels.

Meanwhile, the stronger USD is limiting gains and a more hawkish Fed could drag on demand.

WTI crude trades +0.1% at $83.22

Brent trades +0.3% at $85.84

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Looking ahead

15:00 Consumer confidence