US open: Inflation fears return ahead of FOMC minutes, tech tumbles

US futures head lower, led by tech, as inflation fears return to haunt the market ahead of the FOMC minutes. Oil prices extend the selloff. Retailers earnings continue to impress.

USA (2)

US futures

Dow futures -0.8% at 33790

S&P futures -0.9% at 4088

Nasdaq futures -1.3% at 13038

In Europe

FTSE -1.5% at 6942

Dax -1.8% at 15132

Euro Stoxx -1.8% at 3935

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Tech set to lead the declines

Stocks are set to continues the selloff from the previous session as inflation fears dominate the market ahead of the release of FOMC minutes later.

The tech heavy Nasdaq is leading the charge southwards amid rising fears that runaway inflation could prompt the Fed to move earlier on tightening monetary policy. Despite the Fed’s best efforts to convince the market that they will not start raising rates anytime soon, the market remains very undecided. We keep seeing this flip flop in the market between re-opening optimism and rising inflation fears.

FOMC minutes

The FOMC minutes are likely to confirm the Fed’s accommodative stance and belief that higher inflation will be temporary. The question is whether the market will take the Fed at its word. Let’s not forget that the FOMC meeting to which the minutes relate, was before the shock rise in inflation and weak US jobs data. Even so, the minutes will still be scrutinised for any clues as to when the Fed could move on policy.

Adding to the negative sentiment surrounding the tech sector is the sharp drop in cryptocurrencies. Bitcoin has fallen below $40,000 for he first time in over 3 months. China refreshed its ban on cryptocurrency trading.

Resource stocks and oil majors are likely to come under pressure as commodity prices tumble.

Earnings

After blowout earnings from retailers Walmart, May’s and Home Depot on Tuesday, the sector will remain in focus today.

Target reported a 23% rise in Q1 sales. Lowe’s beat forecasts on strong home improvement spending.


Where next for the S&P500?

The S&P 500 continues to trade within its ascending channel dating back to late October indicating that the bull trend remains. However, the price has Fallen through its 20 sma on the daily chart and is currently testing its 50 sma at 4085. The RSI is in negative territory and supportive of further losses. A break below the 50 sma and the lower band of the ascending channel could prompt a deeper selloff towards 4000 the key psychological level. Any recovery would need to retake the 20 sma at 4175.


FX – USD strengthens, GBP falls despite CPI doubling

The US Dollar is heading higher, picking up from a multi month low and snapping a three day losing run. Whilst inflation concerns lifting the US Dollar the minutes to the latest FOMC meeting could add pressure to the greenback.

GBP/USD trades lower on USD strength despite inflation doubling in April. The UK CPI reading for April came in at 1.5% YoY in April, up from 0.7% in March and slightly ahead of the 1.4% forecast. The BoE sees UK CPI overshooting the central bank’s 2% target by the end of the year. This is expected to be transitory.

GBP/USD  -0.2% at 1.4161

EUR/USD  -0.1% at 1.2209


Oil falls on possible progress in Iran US nuclear talks, weak inventory data

Oil is trading sharply lower, extending losses for a second straight session. Re-opening optimism in the West pushed Brent to $70 briefly yesterday, before rumours of progress in Iran US nuclear deal talks quickly brought the price lower. Whilst those rumours were later denied, the damage had been done to oil prices. An unexpected build in API crude inventory data added to the bearish tone.

Today, covid concerns are adding to the downbeat mood towards oil. Tighter pandemic restrictions Asia are raising concerns over slower fuel demand in the region.

EIA crude oil inventory data is due later today.

US crude trades -2.13% at $64.12

Brent trades -2% at $67.29

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Looking ahead

15:30 EIA Crude oil inventory change

16:30 ECB’s Lane to speak

19:00 FOMC minutes


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