S&P500 Forecast: SPX recovers from initial losses after hot NFP report

US futures

Dow futures +0.04% at 37470

S&P futures +0.16% at 4701

Nasdaq futures +0.30% at 16334

In Europe

FTSE -0.55% at 7687

Dax -0.28% at 16558

NFP saw 216k jobs added vs 150k expected
Average earnings rose 4.1%
Apple falls further after Foxconn warning
Oil is on track for a weekly gain

US NFP beat forecasts

US stocks are recovering after a lower open following a stronger-than-forecast non-farm payroll report, which raises doubts over how aggressively the Federal Reserve will be able to cut rates this year.

The payroll report showed that 216k jobs were added in December after November’s job creation was downwardly revised to 173k from 199k. Meanwhile, the unemployment rate stayed at 3.7%, defying expectations of a rise to 3.8%, and the tight labor market also saw average earnings rise to 4.1%.

The data is strong enough for the market to dial back some of the rate cut bets that have been priced in, with the Fed likely to leave rights high longer, particularly given the upside surprise in wages, which will add to inflationary pressures.

The data supports the view that the market was ahead of the curve as far as rate cuts are concerned.

The swaps market is pricing in a 50/50 likelihood of a rate cut in March, down from 60% prior to the report and down from almost 100% in December.

The initial market reaction is as would be expected from a stronger report; with treasury yields up, the 10-year yield rose to 4.09%, pulling stocks lower, putting Stokes lower, and lifting the US dollar. However, the market has since reversed losses, with the 3 main indices heading higher.

Looking ahead, attention will now turn to ISM services PMI figures key, which are expected to E slightly to 52.6 from 52.7; however, this remains firmly above the 50 level, which separates expansion from contraction.

Factory order data is also expected, and economists are forecasting a rise of 2.1% MoM after a decline of 3.6% in October.

Stronger-than-expected data could see investors rein in Federal Reserve interest rate cuts further.

Corporate news

Apple is Falling for a fifth straight session as one of Apple's largest suppliers Foxconn warned of slowing demand. Foxconn anticipates an annual decline in Q1 revenue after weaker demand in the previous three months.

Tesla will be under the spotlight as the EV maker recalls 1.62 million vehicles in China, including models S, X, 3, and Y. The measures come after recalls by the EV maker in EU S in December.

Peloton is set to rise 3.8% on the open after announcing that it's partnering with TikTok to bring short-form fitness videos to the social media platform.

S&P 500 forecast – technical analysis

The S&P 500 fell to a low of 4660, before rising higher. The long lower wick points to little selling demand at the lower price. Buyers will need to rise above resistance at 4700 round number to extend gains towards 4745 and 4800. Failure to rise above 4700 could see sellers look to test 4660 again, with a break below here brining 4600 into focus.

FX markets – USD rises EUR/USD falls

The USD is rising and is on track for its largest weekly gain since May losses after stronger-than-expected U.S. jobs data has seen investors rein in Fed rate cut expectations.

EUR/USD is falling after German retail sales tumbled 2.5% in December despite eurozone inflation rising to 2.9% from 2.4 3. The increase in inflation cast doubts over market expectations for a March rate cut from the ECB.

GBP/USD Is falling amid a stronger USD and after two days of gains amid a quiet economic calendar. The power is set to full across the week after three consecutive weekly gains.

Oil rises across the week

Oil prices are rising over 1% and are set to gain over 2% across the week amid ongoing tensions in the Middle East. Secretary of State Anthony Blinken is preparing to visit the region in an attempt to prevent the Israel-Hamas conflict from broadening out in the region.

News that Maersk will divert all vessels away from the Red Sea for the foreseeable future is keeping the focus on the Middle East, and the risk premium on oil.

WTI crude trades +1.85% at $73.65

Brent trades +1.45% at $78.50

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