US open: Futures rise from session lows as labour costs ease

US futures

Dow futures -0.5% at 33850

S&P futures -0.30% at 4290

Nasdaq futures +0.1% at 13908

In Europe

FTSE -1.55% at 7433

Dax -2% at 15180

Euro Stoxx -2.3% at 4088

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

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

The Core PCE, the Fed’s preferred measure for inflation rose to 4.9% YoY in December, up from 4.7% and beating forecasts of 4.8%. However, personal spending came in -0.6% MoM, personal income (0.3%) and labour costs (1%), were both short of forecasts,.

The knee jerk market reaction saw the US Dollar drop into the red, whilst futures rallied off session lows and the Nasdaq is threatening a positive open.  Whilst the initial reaction suggests that Fed fears are easing, the initial reaction doesn’t always last.

The fact that the data comes after the Fed meeting undermines it. The softer set of personal income and spending numbers are unlikely to derail the Fed from its firmly hawkish path. As a result, any pull back in the dollar and relief rally in the Nasdaq could be short lived.

Fears over the pace at which thew Fed could need to hike interest rates have dragged on stocks across the week. Can the US economy deal with such a steep path to monetary policy normalization? Fears over the economy's ability to absorb a fast pace to monetary policy tightening have hit stocks even as earnings so far have been broadly upbeat.

In other corporate news:

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

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

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

Where next for the Dow?

The Dow Jones is consolidating capped on the upside by 34800 (weekly high) and on the lower side by 33530 (January 25 low). The price trades below the 20 & 50 sma on the 4 hour chart and the RSI suggests further losses. Sellers will be looking for a move below 33550 to retest 33130. A beak below here could see sellers gain traction. Buyers will look for a move over 34800 to target 35600

FX markets USD reverses, AUD falls lower

After a strong start the USD is falling lower following the mixed data. The softer employment costs and personal income sub-index is easing fears over an aggressive Fed..

AUD/USD trades sharply lower underperforming its major peers. A triple whammy of a stronger US dollar, risk off sentiment and tanking gold prices in hurting the aussie which has tumbled below the key 0.7 support.

GBP/USD -0.01% at 1.3380

EUR/USD -0.09% at 1.1135

Oil sets for 6^th straight week of gains

Oil prices are on the rise and are on track for a sixth straight week of gains as geopolitical tension and supply concerns dominate.

Oil prices have received support from concerns that the Russia Ukraine crisis could disrupt energy supply. Whilst Russia has massed troops on the border, it says it is not planning to invade. Meanwhile the US has warned Ukraine that an invasion could be imminent. Ukraine is a critical transit hub for both gas & oil from Russia.

The strong USD is keeping Brent capped at $90, ahead of the OPEC+ meeting next week. The group are not expected to raise output quotas given that the group is struggling to meet current targets.

On the demand side China, the world’s largest imported of oil could see a 7% rebound in demand.

WTI crude trades +1.3% at $87.28

Brent trades +1.16% at $89.28

Learn more about trading oil here.

Looking ahead

15:00 US Michigan consumer sentiment

18:00 Baker Hughes rig count