US open: Stocks rise, Russia cuts gas supplies, tech shows divergence

Congress building
Fiona Cincotta
By :  ,  Market Analyst

 

US futures

Dow futures +0.7 % at 33450

S&P futures +0.42% at 4196

Nasdaq futures +0.2% at 13040

In Europe

FTSE +0.6% at 7437

Dax +0.02% at 14020

Euro Stoxx  +0.24% at 3730

 

Investors brush off Russian developments, for now

US stocks are set for a mildly stronger start after a selloff in stocks yesterday and as investors digest news of Russia cutting off gas supplies to Poland and Bulgaria and the latest from earnings season.

The fact that stocks are rising despite Russia cutting off the gas supply to parts of Europe is somewhat surprising. The move by Putin to weaponise energy escalates tensions between the EU and Russia to new levels.

This could be considered a warning shot to Germany, which is particularly dependent on Russian oil. The move has mainly been reflected in the euro, with stocks on both sides of the Atlantic moving higher.

Still, after the Nasdaq plunged 3.2% yesterday, bargain hunters are out lifting the index.

Looking ahead, the US economic calendar is relatively quiet. US pending home sales are expected to decline again in March, having fallen on surging prices for the past four months.

In corporate news:

Tech stock’s earnings show an increased divergence between those that could continue to outperform and those that are set to see some weakness after the pandemic. While Microsoft reported ahead of expectations thanks to the booming Cloud business, Alphabet’s numbers were less impressive missing forecasts. Alphabet suffered a big miss owing to more competition and as consumers came off YouTube as the economic re-opened.

Alphabet’s results don’t bode well for Facebook parent Meta, which is due to report after the close.

 

Where next for the Dow Jones?

The Dow Jones ran into resistance at 35500, rebounding lower, breaking below the 50 & 100 sma. The price found support yesterday at around the 33150 mark and is attempting a bounce. Failure to capitalise on the move over 33580, along with the bearish MACD, keeps sellers optimistic about further downside. Sellers would need to break below 33150 to open the door to 32250, the 2022 low. Any recovery would need to break above 33500 to expose the 50 sma at 34200, with a move above this level creating a higher high and opening the door to the 100 sma at 34890.

Dow Jones chart

FX markets USD rises, and EUR falls to a five-year low.

USD is extending gains, trading at a two-year high, driven by a combination of safe-haven flows amid the Russian war and China’s COVID and hawkish Fed expectations.

GBP/USD hovers around its 21 months after falling sharply yesterday on the darkening economic outlook and higher government spending. BoE rate hike bets have been reined in with 144 basis points hike expected across the year, down from 160 basis points.

EUR/USD trades below 1.06 at a 5-year low on rising Russian tensions and central bank divergence. Concerns over energy security and inflation fears add to the negative picture surrounding the euro. German consumer confidence dropped to a historic low of -26.3 heading into May, down from -15.5 in April.

GBP/USD  -0.01% at 1.2576

EUR/USD  -0.5% at 1.0586

Oil steadies as demand concerns remain

Oil is trading steadily on Wednesday after rallying 3.5% yesterday following Russia cutting gas supplies to Bulgaria and Poland. The move by Gazprom over payments not being made in rubles marks a significant escalation of Russia’s energy row with the West.

Crude oil prices have remained relatively calm given the severity of what is going on. However, supply fears were reflected elsewhere within the energy complex, with gas prices jumping 20%.

Keeping the lid on gains, demand fears remain as China’s COVID situation appears to be deteriorating, and fears of more lockdowns linger amid mass testing in Beijing.

USD strength is also capping gains as a stronger dollar makes oil more expensive for buyers with other currencies.

Looking ahead, attention will be on US oil inventory data after API data revealed that crude stockpiles unexpectedly rose by 4.78M barrels.

WTI crude trades -0.4% at $101.74

Brent trades +0.6% at $105.02

 

Looking ahead

15:00 US pending home sales

15:30 EIA crude oil

17:00 ECB President Lagarde’s speech

 

 

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