By Geoffrey Smith
Investing.com — The selloff in U.S. equities looks set to resume at the open, despite Monday’s violent short squeeze. Microsoft (NASDAQ:MSFT), Johnson & Johnson (NYSE:JNJ) and General Electric (NYSE:GE) lead a cast of thousands reporting quarterly results and Nvidia (NASDAQ:NVDA) is set to drop its planned acquisition of ARM. German business gets less gloomy and the Federal Reserve begins a two-day policy meeting. Here’s what you need to know in financial markets on Tuesday, 25th January.
1. U.S. stocks set to open lower again as rebound fades
Monday’s late rally may prove to have been nothing but a head fake. U.S. stock futures were clearly down again in the overnight session, after a violent short squeeze on Monday ran out of steam.
By 6:15 AM ET, Dow Jones futures were down 127 points, or 0.4%, while S&P 500 futures were down 0.8% and Nasdaq 100 futures were down 1.3%. That more than wipes out the net gains from Monday’s session, although it’s nowhere near the intraday lows seen in the first couple of hours of trading.
The market’s big test later will come from the corporate earnings roster, which starts with Johnson & Johnson, General Electric, American Express (NYSE:AXP), Archer-Daniels-Midland and defense giants Raytheon (NYSE:RTN) and Lockheed Martin (NYSE:LMT).
However the real test of sentiment will come after the close, when Microsoft and Texas Instruments (NASDAQ:TXN) have to justify their still-high valuations. Microsoft will likely be asked to elaborate on what it intends to do with its $68 billion purchase, Activision Blizzard (NASDAQ:ATVI).
2. Fed meeting to start; Conference Board, Richmond Fed updates
The data calender, by contrast, is pretty light, with the most interesting updates coming from the housing sector. There’ll be the national house price data along with the S&P/Case-Shiller assessments of prices in November at 9 AM ET (1400 GMT).
In addition, there are the regular updates from Redbook Research at 8:55 AM ET and the Conference Board’s Consumer Confidence survey at 10 AM ET, along with the Richmond Federal Reserve’s monthly business survey.
The day’s big macro event isn’t actually an event until Wednesday, of course. The Federal Reserve starts its two-day policy meeting later. It isn’t expected to change its monetary policy stance, but that won’t stop intense scrutiny of its forward guidance.
3. Nvidia ‘set to drop ARM takeover’
While Texas Instruments will give the big update from the chipmaking sector later, there are other developments already afoot.
Nvidia is reportedly preparing to drop its $40 billion deal to buy U.K.-based chip design company ARM from Softbank (OTC:SFTBY), having come to the conclusion that various regulators will kill it in any case.
Antitrust regulators in both the U.S. and China are against the deal, which also faces a national security review in the U.K.
Softbank is now preparing an IPO of ARM in due course, according to Bloomberg News.
4. German business confidence turns
Whisper it quietly, but German business is seeing signs of light at the end of the tunnel. Having fallen for the last five months, the Ifo Business Climate index inched up in January as companies reported a slight easing of supply bottlenecks.
The index rose to 95.7, defying expectations of stagnation at 94.7. While the ‘current conditions’ assessments deteriorated a little, there was a clear improvement in the ‘expectations’ component.
Shortages of chips led companies such as Volkswagen (DE:VOWG_p) to report marked drops in sales last year, and data for new orders and industrial output in the final months of the year had disappointed. The Deutsche Bundesbank said yesterday that Europe’s largest economy probably shrank in the fourth quarter.
5. Oil edges higher as supply concerns trump market volatility
Crude oil prices edged higher, as the realities of supply scarcity outweighed concerns about broader volatility in risk assets.
By 6:45 AM ET, U.S. crude futures were up 0.6% at $83.77 a barrel, while Brent futures were up 0.7% at $86.00 a barrel.
The American Petroleum Institute reports its weekly U.S. inventory data at 4:30 PM as usual, with the market looking to see whether a three-week streak of builds in gasoline inventories will be broken.