US open: Stocks fall after retail sales surge

US futures

Dow futures -0.3% at 33943

S&P futures -0.37% at 4115

Nasdaq futures -0.32% at 12533

In Europe

FTSE +0.06% at 7968

Dax +0.05% at 15450 

Higher rates for longer?

US stocks heading lower after a rebound in US retail sales add to fears that inflation is not cooling as quickly as hoped, ramping up concerns that the Fed may need to raise interest rates for longer.

US retail sales jumped 3% MoM, and January was a strong rebound from December’s -1.1% fall. Analysts had forecast a 1.8% rise.

Stronger-than-expected retail sales, which come after January’s blowout jobs report, are adding to the inflationary environment and fueling bets that the Federal Reserve will need to keep interest rates higher for longer in order to tame inflation.

US CPI data yesterday showed that US inflation cooled to 6.4%, down from 6.5%, missing forecasts of 6.3%.

Recent data make it clear that the Fed’s work is not yet done. According to New York Fed president John Williams, a terminal rate between 5% and 5.2% seems very reasonable. Meanwhile Fed president Lori Logan warned over rate hikes for longer than previously expected.

The market is expecting the Fed to raise interest rates by 25 basis points in March, and a further 25 basis points are now being priced in for May.

Corporate news

Airbnb rises 8% pre-market after reporting better than expected fourth quarter numbers and above forecast guidance for the current quarter thanks to resilient travel demand

Tesla rises 2.1% pre-market after reports that the EV maker is set to pause some production in China as it upgrades its facilities to make a refreshed version of the model 3 compact sedan.

Barclays ideas appalling temper sent after the UK bank posted disappointing QA profit and after it was hit by litigation charges of £1.6 billion for overselling investment products in the USA

Where next for the S&P500?

After rising to 4200 at the start of February, the price has eased back an is consolidating between 4200 and 4050. The long upper wick on yesterday’s candle combined with the bearish crossover on the MACD are keeping sellers hopeful of further downside. Sellers will look for a break below 4050 for a lower low and to open the door to 4000 the psychological level and the 100 sma. Below here the rising trendline support at 3965 comes into play. Buyers could look for a rise over 4140 the December high and a rise over 4200 is needed to create a higher high.

FX markets – USD rises, GBP falls

The USD is rising as investors reposition for a more hawkish Federal Reserve after yesterday’s inflation print showed that the pace that inflation was cooling has slowed.

EUR/USD is falling against the stronger U.S. dollar and as investors digest a weaker-than-expected industrial production in the bloc, eurozone industrial production fell 1.1% MoM, worse than the -0.8% decline forecast. ECB President Christine Lagarde is due to speak later.

GBP/USD is falling towards 12050 after you came inflation data was cooler than expected UK CPI eased to 10.1% YoY in January; this was down from 10.5% in December and below the 10.3% forecast. This is the third consecutive month that inflation has cooled as it moves away from the peak of 11.1% reached in October.

GBP/USD -0.6% at 1.2065

EUR/USD -0.15% at 1.0765

Oil falls for a fourth day

Oil prices are falling for a fourth straight session after US inventories rose by more than expected and on Fed jitters amid fears that higher US interest rates could damp economic growth and the oil demand outlook.

according to the API US crude stockpiles raise by 10.5 million barrels which were once again ahead of forecasts. The EIA data is out later today, but recent figures suggest that U.S. has ample oil supplies, at the same time that demand could struggle.

US inflation data has raised concerns that the Federal Reserve will keep interest rates going higher for longer, holding back growth and hurting the oil demand outlook.

Also adding pressure to crude oil this week was the announcement by the US that it would sell 26 million barrels of oil from the nation’s strategic reserves, which are already at their lowest level in around 40 years.

A report from OPEC is going some way to limit losses. The report shows that the group raised its projections for global oil demand growth and cut the non-OPEC supply outlook, which together points to a Titan market this year.

WTI crude trades -0.8% at $78.85

Brent trades at -1% at $85.06 

Looking ahead

15:30 EIA stockpile data