Overnight Headlines

*Asian stocks track Wall Street higher on strong earnings

*OPEC+ seen sticking to policy despite oil rally

*Google shakes off Covid with shopping ads, cloud revenue

*Dollar restrained by risk revival, spread of rate speculation

US equities continued to rally with gains broad based across regions and sectors. The leaders were seen in value areas like banks and energy. The small cap Russell 2000 index led gains up +1.1%, S&P500 +0.7%, Dow and Nasdaq both up +0.8%. The VIX tumbled again, now near to 20. Japanese stocks are boosting Asian markets though China remains closed for the holiday. Futures in Europe and the US are positive, helped by solid Google earnings.

USD lost more ground from Friday’s cycle high at 97.44, falling back into the December range. EUR/USD moved closer to 1.13 and the 21-day SMA. GBP pushed above 1.35 and is trading around its 100-day SMA at 1.3525. AUD is advancing for a third straight day after rebounding off strong support around 0.70. NZD found a bid but needs to get above 0.67 to stop the bearish momentum. New Zealand unemployment came in at the lowest ever recorded (3.2%), following the tight labour market trend seen in numerous other countries.

Market Thoughts – Eurozone CPI still elevated

Ahead of tomorrow’s ECB meeting, we get flash euro area inflation data for January. Analysts expect a fall to 4.5% from the all-time high 5% seen in December as the German VAT effect drops off. Core inflation, which excludes food and energy price growth, is forecast to show a decline to 2% from a record 2.7%.

Readings from other countries earlier this week have been stronger than expected with Germany, France and Spain all exceeding expectations. The ECB’s 4.1% forecast for the first quarter of this year may now actually undershoot actual inflation by a full percentage point. This means the ECB hawks will inevitably put pressure on the rest of the governing council to defend its ultra-accommodative stance.

Chart of the Day – Alphabet pops on strong earnings

Nasdaq futures are firmly in the green after Google-parent Alphabet soared nearly 9% in extended trading after the company beat on the top and bottom lines for its quarterly results. A strong surge in search advertising revenue and a rare 20-for-1 stock split, making the stock more affordable for retail investors, added to the market enthusiasm.

The stock hasn’t suffered as badly as other megacap tech stocks in the January selloff but dipped into oversold territory last Monday. Prices dropped through the lower Keltner band and below 30 on the daily RSI. The rebound has taken prices above the 200-day SMA at $2710 which now becomes support. Upside targets include the 50-day and 100-day SMA around $2837.