US and European stock futures are trading sharply lower today while focus continues to remain on the earnings seasons among investors. Today, we are going to see more earnings from US banks and corporates such as Goldman Sachs and Bank of America, Netflix and United Health. Remember, JP Morgan and Citibank both got hammered on Friday on the back of their earnings report as they failed to impress investors.
Basically, these companies have too much pressure to impress investors, given the economic backdrop. These firms need to impress not only through revenue growth, but also focused through their forward guidance, and they want to see a picture that confirms strong demand for them in 2022 despite all the challenges opposed by Omicron. This is incredibly tough.
In addition to this, traders are also nervous about the excessively hawkish stance by the Fed, which has indicated that they like to increase the interest rate, not three times but four times this year.
In fact, some members of the FOMC believe that an interest rate hike can take place as soon as March as economic conditions warrant them to take such a measure. But for traders, the spread of Omicron has raised questions, and it has led to several lockdowns in some regions in different countries. Regional or national lockdowns to prevent the spread of the virus mean more pressure on the supply chain, which is already suffering.
So far, we have seen a shaky start for the global equity markets for this year. The Dow, the S&P 500, and the Nasdaq are all in a downtrend, and they are only building on their weekly losses, which were posted last week. The tech sector is feeling the biggest pain as it is down over 4%, and names such as Apple, Microsoft, Amazon, and Netflix are all down year-to-date. Having said that, bargain hunters are likely to step in but only when they see that prices are at a bargain level, and currently, it doesn’t seem like we are there yet.
We continue to see oil prices marching higher in the oil market, and OPEC+ continues to think that there is ample supply given the current economic growth. Brent oil prices rose above $86 earlier today, which is the highest level since October 3, 2018. Similarly, the WTI price also made a high of 84.71—the highest price level since November 10, 2021.
The factor pushing the oil prices higher is supply outage, and traders believe that Omicron isn’t going to be disruptive as it was considered earlier.
On the other hand, OPEC+ is showing no consideration in relation to oil prices as they believe that supply and demand is relatively balanced, and if they increase oil supply by utilising their excess capacity, it will only hurt oil prices. Their belief is that the right approach is to gradually increase oil supply—the way they have been doing so far. In addition to this, traders are also keeping close on the growing geopolitical tension between the US, China and Russia. The recent statement from US officials where voiced concerns that Russia may be preparing to attack Ukraine is raising alarm bells among traders as they see this event as a disruptive event for oil supply.