U.S. stock futures were firmer on Monday, as investors looked to extend a strong rally at the end of last week.
How are stock-index futures trading
- S&P 500 futures ES00, +0.40% rose 15 points, or 0.4%, to 3930
- Dow Jones Industrial Average futures YM00, +0.30% added 67 points, or 0.2%, to 33839
- Nasdaq 100 futures NQ00, +0.41% eased 58 points, or 0.5%, to 11171
On Friday, the Dow Jones Industrial Average DJIA, +2.13% jumped 701 points, or 2.13%, to 33631, the S&P 500 SPX, +2.28% increased 87 points, or 2.28%, to 3895, and the Nasdaq Composite COMP, +5.02% gained 264 points, or 2.56%, to 10569.
What’s driving markets
The new week is starting on a stronger note as traders look to extend a big surge on Friday, when jobs and services data raised hopes the Federal Reserve can soon stop raising interest rates and the U.S. economy can avoid a hard landing.
The nonfarm payrolls report showed a healthy pace of job creation and and an unemployment rate of just 3.5%. But it also showed a slowing in wage growth, potentially easing pressure on service sector inflation, an area of price pressures which the Fed is keenly eyeing as it tightens monetary policy.
Indeed, an ISM survey of service sector activity illustrated how the Fed’s rate rises — 4.25 percentage points of hikes since March — already seem to be negatively impacting the economy.
Investors were thus emboldened by hopes the Fed could soon stop increasing borrowing costs and that any economic downturn will not be so severe that it badly impacts company earnings.
“On the back of ISM and payrolls, investors immediately moved to price in a less aggressive pace of rate hikes from the Federal Reserve. For instance, futures pricing for the end-2023 rate came down by -10.3bps over the week (-19.0bps on Friday) to 4.48%,” noted Jim Reid, strategist at Deutsche Bank.
“That was a big catalyst for risk assets, with the S&P 500 surging +2.28% on Friday, which brought the index back into positive territory for the week at +1.45%. It also led to a massive decline in Treasury yields, with the 10yr down -31.7bps over the week (-16.0bps Friday) to 3.558%.”
Ipek Ozkardeskaya, senior analyst at Swissquote Bank, said: “The Fed is not looking to push the U.S. economy into recession for fun, it wants to see the jobs market tighter because, in theory, a tighter jobs market should help ease inflation.”
“But if inflationary pressures ease with little negative impact on jobs, that’s what we call the goldilocks scenario: a soft-landing from the ultra-supportive monetary policy euphoria, easing inflation without too much pain on jobs market. In other words, it’s jackpot for the Fed!” she added.
This positive narrative may be re-tested later this week when the U.S. consumer price index is released on Thursday, followed the next day by the fourth quarter corporate earnings season kicking into gear, with JPMorgan Chase JPM, +1.91%, Bank of America BAC, +1.00% and Citigroup C, +1.20% presenting their results.
U.S. economic updates set for release on Monday include the New York Fed 1- and 5-year inflation expectations at 11 a.m. Eastern. Atlanta Fed President Raphael Bostic is due to speak at 12:30 p.m.
Helping support sentiment on Monday was a positive showing for Asian equities, with Hong Kong’s Hang Seng HSI, +1.89% up 1.9%, as investors welcomed further signs of Beijing relaxing its COVID-19 restrictions.