Overnight Headlines

*US Dollar steadies ahead of key inflation data

*Asian equity markets are mixed while US futures edge lower

*Fed’s Mester not keen on half-point hike, Bostic’s options open

*Oil steady as investors eye nuclear talks, gold range bound    

US equities climbed as tech shares led the market higher. The Nasdaq jumped 2.08%, the S&P500 gained 1.45% and the Dow rose 0.85%. Growth and cyclicals beat value and defensives. The VIX ticked down below its long-term average at 20 for the first time since the selloff began in mid-January. Asian markets are mixed this morning though European bourses are indicated to open in the green.

USD softened in a narrow range as the euro, sterling and yen majors remained fairly rangebound.  Markets are lacking a unifying theme as investors appear to be waiting for US CPI data for the next driver. High beta currencies led the gains on the dollar, with AUD rising as much as 0.7% and climbing above its 50-day SMA.

Market Thoughts – How much is US CPI coming down?

Today sees the release of the latest US inflation data. Consensus expects a headline reading of 7.2% y/y in January up from 7% in the prior month. However, a slower monthly increase of 0.4% is forecast, from the revised 0.6% in December. Core inflation, which excludes volatile food and energy costs, is expected to rise 0.4% in January or 5.9% y/y compared to 0.6% and 5.5% respectively in the final month of last year.

It seems clear if the number surprises on the upside, the market will argue further for the Fed to be aggressive. Speculation will increase that a 50bp hike in March is warranted, rather than just 25bp. The flip side and a weaker print sees questions about whether inflation is rolling over and how much that motivates the Fed to tighten this year. Money markets currently price in more than five quarter-point rises for 2022.

Chart of the Day – Nasdaq hits 200-day SMA

Tech stocks are endeavouring to continue their comeback this week after taking a battering since the start of 2022. The Nasdaq 100 is enjoying its third straight week of gains, but near-term direction will depend on today’s inflation data. Tech is particularly vulnerable to rising bond yields which reduce the valuation investors put on their future earnings.

The Nasdaq 100 plunged to spike lows at 13,724 in late January but then consolidated above previous highs from April last year around 14,000. Dip buying has seen the index move higher again above next resistance/support at 14,384. Prices tried to move above the 200-day SMA at the start of the month but closed lower. This level at 15,048 is key for direction with upward momentum still evident but the daily RSI middling at 50. Bulls will aim for 15,508 while 14,384 is support.