Forex Analysis & Reviews: 10.02.2022 - US premarket for February...

10.02.2022 01:30 PM

US premarket for February 10: stock market may collapse after US inflation data release

US stock index futures are trading mixed on Thursday ahead of US inflation data expected to be released in the afternoon. Dow Jones Industrial Average futures changed little. S&P 500 futures jumped by 0.2% and Nasdaq 100 futures declined by 0.3%.

The Nasdaq Composite gained 2% for a second day yesterday as tech stocks were topping the ranks, helping the market recover some of its losses from January's sell-off. The S&P 500 rose by 1.5% and the Dow Jones Industrial Average increased by 305.28 points or 0.86%. Shopify and Etsy, as well as shares of DocuSign and Zoom, showed particularly big gains. Bond yields, which have risen this year, declined slightly before the key data release, which may have contributed to the rise in tech stocks. The 10-year Treasury bonds traded around 1.945%.

Twitter, Coca-Cola, and Kellogg will release their reports before the market opens today. After the opening, we'll look for Expedia, Affirm, and Zillow statements.

Premarket

Disney shares jumped by more than 6% in premarket trading after the company reported quarterly earnings and doubled revenue from its parks division. Uber also added 5.75% after the company reported revenue outperformance and a good recovery from problems caused by restrictions due to the pandemics.

Investors are also waiting for the US inflation report, which will give an updated picture and a broader understanding of how the Federal Reserve will act this March. Until it becomes clear exactly what path US inflation is taking, and how hawkish the Fed will act, we can expect sharp spikes and high volatility in the market. However, by the time interest rates are raised in March this year, the hysteria should gradually subside as investors will have a plan for further action from the central bank.

The US Labor Department is releasing consumer price index data for January today. The data will follow a stronger-than-expected January employment report. This may prompt the Federal Reserve to be more hawkish. The inflation data is expected to show price growth of 0.4% in January, up by 7.2% from a year ago, which is the highest rate in nearly 40 years.

The good news for investors is that the US inflation appears to be close to the all-time high, and tomorrow the index may reach it. There have been some recent improvements in supply chains, which is the first sign that inflation is approaching its peak.

Rates need to be raised more aggressively

Cleveland Federal Reserve Board President Loretta Mester's statements were very hawkish yesterday. Her job is to prepare the market and investors for the future of monetary policy changes. Mester laid out an aggressive plan to roll back easy-money policies this year, saying the central bank would be willing to raise rates at any meeting and might well consider getting rid of the mortgage-backed securities it holds on its balance sheet. "Each meeting is going to be in play," Mester said Wednesday at a virtual event hosted by the European Economics and Financial Center. "We're going to assess conditions, we're going to assess how the economy's evolving, we're going to be looking at the risks, and we're going to be removing accommodation."

Markets are currently expecting the Fed to raise the benchmark short-term interest rate at its March meeting. Traders are predicting at least four more hikes during the year.

Mester, on the other hand, noted that she has recently been expecting a rate hike in March, but does not expect a rate hike of more than 25 basis points, as is usually the case. She also stressed that it is time for the central bank to start reversing the stimulus measures it took during the pandemic.

Let's see what she has to say after today's US inflation data, which could go over 7.0%.

As for the technical picture of the S&P500

Today we may see another decline to $4,536. If there are no active buyers, it may lead to increased pressure on the index and return to the bear market. The index may touch $4,378 and $4,312. If there is no sell-off and reaction to inflation in the US, large purchases above $4,598 cannot be ruled out. This will keep the bull market alive and the index is likely to be trading within a new broad channel of $4,589 - $4,665 - $4,722.

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*Disclaimer: The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.