US open: Stocks drop on inflation & tighter policy fears

Congress building
Fiona Cincotta
By :  ,  Senior Market Analyst

US futures

Dow futures -0.7% at 32680

S&P futures -0.9% at 4150

Nasdaq futures -1.1% at 12443

In Europe

FTSE -0.4% at 7536

Dax -1.1% at 14484

Euro Stoxx -1.3% at 3790


Stocks fall, RBA surprises the market

US futures are pointing to a sharp fall on the open as inflation fears and concerns over aggressively hawkish central banks haunt the market.

Overnight the RBA caught the market off guard and hiked rates by 50 basis points, the largest hike in 22 years. The move has highlighted just how concerned central banks are over surging inflation and markets are nervous over how far the likes of the Fed are prepared to go to bring inflation back under control.

Adding to the downbeat mood another profit warning from Target, it’s second in less than three weeks, which highlights the struggles that retailers are experiencing and the squeeze that companies will face on margins as prices, wages, and costs rise.

There is no high impacting US economic data and Fed policymakers are quiet ahead of next week’s FOMC meeting.

The Fed is expected to raise interest rates by 50 basis points in June and again in July. What happens beyond there policy direction is unclear. CPI data, due on Friday could help to set the scene for the next move. The market is looking for confirmation that peak inflation has passed, only then is there a chance that we will see a meaningful recovery in the stock market.

In corporate news:

Target is falling 9% pre-market after its profit warning.

Twitter is falling pre-market after Elon Musk threatened to pull out of the $44 billion deal to buy the social media company.

Apple announces an overhaul of its MacBook Air 

Where next for the Nasdaq?

The Nasdaq ran into resistance at 12940 and has been falling lower as the index consolidates. The price is capped on the upside by 12940 and on the lower side by the 12400. The RSI is neutral. Sellers could look for a break below 12400 and the 20 sna at 12300, to open the door to 12100 the May 25 high. Buyers will look for a move over 12940 to create a higher high and expose the 50 sma at 13175.

nasdaq chart

FX markets – USD rises, JPY tumbles

USD is rising, adding to gains in the previous session as the US 10-year bond yield rose over 3% to a 4-week high. Investors are betting on an aggressive Federal Reserve, although Friday’s CPI data will be key.

GBP/USD is falling after PM Boris Johnson scraped through a vote of no confidence. The British PM won 59% of the votes after more Conservative MPs that expected voted against him. With deep divisions in the party he could struggle to unite the Tories. Separately UK business activity slowed to May, albeit by less than expected, it still doesn’t bode well for the GDP outlook.

USD/JPY has risen to a 2-decade high. The outsized rate hike by the RBA has pulled on the yen highlighting just how dovish the BoJ is compared to other major central banks. 

GBP/USD -0.34% at 1.2496

EUR/USD -0.37% at 1.0661

Oil prices steady ahead of API data

The oil market is trading quietly today as investors continue weighing up tight supply, rising demand, and a more downbeat market mood ahead of API crude oil inventory data later, which could provide fresh direction.

The US has authorized ENI & Repsol to ship Venezuelan crude oil to Europe to replace Russian barrels from July in a move that will at least help ease some tightness in the market. Concerns over slowing global growth are also dragging on the broader demand outlook for oil.

However, boosting the price of oil, demand from China is expected to ramp up as the world’s largest oil importer eases lockdown restrictions. Furthermore, doubts over the OPEC+ production increase are also seeping into the market. We know that the group has struggled to achieve output targets at current levels, let alone, significantly higher.

Attention will now turn to the API data for fresh clues.

WTI crude trades -0.16% at $116.50

Brent trades -0.27% at $118.50


Looking ahead

21:00 API crude oil inventories




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