US open: Wall Street heads lower as inflation fears return

US futures

Dow futures -0.41% at 35159

S&P futures -0.4% at 4451

Nasdaq futures -0.3% at 15098

In Europe

FTSE -0.5% at 7195

Dax -0.8% at 15460

Euro Stoxx -0.93% at 4140

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Tech underperforms, yields rise

US stocks are set to open lower as inflation concerns persist and treasury yields climb higher. Rising commodity prices, particularly oil prices, which only appear to go in one direction at the moment are boosting expectations of high inflation becoming more entrenched and a sooner move by the Fed to raise interest rates.

This is hurting demand for stocks, particularly tech stocks, which are less attractive as interest rates rise but also as investors also looking ahead to a slew of earnings from these big names.

Whilst impressive numbers from the big banks set an upbeat tine in the previous week, investors are jittery over whether corporate America can keep up the solid string of earnings.

Adding to the downbeat mood China’s GDP growth slowed considerably to 4.9%, down from 7.9% missing forecasts of 5.2%. The data revealed the impact that the Evergrande crisis and ongoing energy crunch was having on the world’s second largest economy.

Where next for the Dow Jones?

Friday’s jump higher saw the Dow Jones breakout above its 50 sma and key resistance around 35,000. This now acts as near term support as the rise higher runs out of momentum. It would take a mover below 34800 the 50 sma and back into the previous trading range for the near term upward bias to be negated. Bulls will keep an eye on 35600 and fresh all time highs.

FX – USD rebounds, AUD falls on weak Chinese data

The US Dollar is rebounding tracing US treasury yields northwards. Rising commodity prices are stoking inflation expectations and bets that the Fed will move to raise rates sooner.

AUD/USD is under performing its peers. The China proxy trades under pressure following disappointing GDP data from China.

Oil heads higher as generators boost demand

Oil prices scaled to fresh multi-year highs on Monday boosted by recovering post pandemic demand and by more demand amid a switch from coal and gas to oil and diesel as the energy crisis continues. With the Western hemisphere heading into the cooler winter months demand for energy is likely to pick up further, driving oil prices higher.

All in all, the oil deficit is set to worsen as demand outstrips supply. As long as OPEC refrain from adding more production, oil prices could continue climbing. Given that OPEC+ missed its target output again as some countries struggle to ramp up demand, this is looking unlikely for now.

WTI crude trades 1.3% at $82.87

Brent trades +0.86% at $84.82

Learn more about trading oil here.

 

Looking ahead

14:15 Industrial Production

15:30 BoC Business Outlook