US open: Stocks cautiously higher, oil keeps on rising

US futures

Dow futures +0.25% at 337350

S&P futures +0.35% at 4350

Nasdaq futures +0.35% at 14170

In Europe

FTSE +0.8% at 7399

Dax -0.6% at 14144

Euro Stoxx +0.5% at 3838

Sanctions hit commodity prices

US stocks are set to move modestly higher on the open after steep losses yesterday. The market mood has improved slightly following comments from Russia that they are ready to talk again, bringing a ray of hope that a ceasefire is still a possibility.

Still the mood is very cautious and oil trading at its highest level since 2014 is adding to the market woes. Oil prices and more broadly, energy prices and commodity prices are rising to new highs as traders are shunning Russian supply. Whilst current sanctions aren’t on commodities, concerns of being tangled up in the banking sanctions are enough to keep buyers away.

Slower growth, higher inflation

Concerns over the impact on global growth have weighed on risk sentiment. The Ukraine crisis is a double hit to the economy and a central bank’s nightmare. Firstly, growth is expected to take a hit, plus companies across the globe are pulling out of operations in Russia at a significant cost.

Secondly, given Russia’s important in the commodities market, commodity prices are surging sending inflation, which already at 30 or 40 year highs depending on the region, even higher.

Fed Powell to testify

Central bankers are stuck between a rock and a hard place. When Fed Chair Powell testifies before congress we could get a better idea of which the Fed will faviour, reining in inflation aggressively with the risk of seeing growth slow considerably or even stall, against a softer approach to inflation to coax growth, with the hope that it doesn’t get more out of control. Central bankers are stuck between a rock and a hard place.

ADP beats

On a more positive note, the ADP payroll report came in well ahead of forecasts at 475k, whilst last month’s -301k was upwardly revised you 509k. That’s almost 1 million jobs in two months, not bad going.

Where next for the S&P 500?

After rising to 4400 in the previous session, sellers re-entered the market bringing the S&P500 price back down to 4275. The price has traded relatively range bound caught between these levels since February 25. Whilst the prices has inched over the 50 sma on the 4 hour chart, the longer term trend remains bearish. Buyers need to push above 4400 to form a higher high, bringing the falling trendline into focus. Meanwhile sellers could look for a move below 4275 to set the downward trend back in motion.

FX markets USD rallies, EUR rises from session lows

USD is rising, building on gains from the previous session. The ongoing Russia conflict is driving safe haven flows. Fed Powell could spark volatility in the USD later.

USD/CAD the Canadian dollar is strengthening versus the USD as it traces oil prices higher and as investors look ahead to the BoC interest rate decision. The central bank is broadly expected to raise interest rates by 25 basis points. Yesterday data showed that the Canadian economy rebounded faster than expected in Q4.

EUR/USD has recovered from session lows and is attempting to move back above 1.11 on optimism of peace talks and following hot inflation. Eurozone inflation hit a record high of 5.8%, adding pressure on the ECB to hike rates sooner.

GBP/USD  -0.13% at 1.3400

EUR/USD  -0.5% at 1.1162

Oil jumps 15% in 3 days

Oil prices have kept on rising, adding another 5% to gains of 10% already this week as Western sanctions kick in.

The West have not sanctioned oil directly. However, through sanctioning the Russian financial system and excluding Russia from SWIFT, payments, financing and insurance for Russian exports is problematic, hitting Russian exports including oil.

Highlighting the extent of the fears in the oil market, even the EIA agreeing to add 60 million barrels supply failed to pull oil prices lower. The move does appear to have paused the rally, however this is likely to be temporary. A more sustainable increase in supply is needed to pull the price lower.

OPEC+ meet today and are not expected to raise output.

WTI crude trades +5.2% at $107.63

Brent trades +5.4% at $110.30

Looking ahead

15:00 BoC rate decision

15:00 Fed Powell testifies

15:30 EIA Crude oil stock change

19:00 Fed Beige book