- Dow futures -0.01% at 34110
- S&P futures -0.1% at 4005
- Nasdaq futures -0.14% at 11816
- FTSE +0.03% at 7494
- Dax -0.4% at 14430
Will the terminal rate rise?
US stocks are edging modestly lower as investors look ahead to the US Federal Reserve interest rate decision later today and as they attempt to gauge whether inflation has cooled sufficiently to encourage policymakers to slow the pace of rate hikes.
U.S. stocks rallied yesterday after inflation fell for a fifth straight month and the US dollar fell. However, the market still remains cautious over whether the Fed could remain resolute on continuing rate hikes.
A 50-basis point rate hike is priced in, and investors are more concerned over what signals policymakers could give about 2023 and when interest rate hikes could stop.
Let’s not forget that inflation is still 3.5 times the Fed’s 2% target. Any signs that the Fed’s terminal rate is forecast to be over 5% would suggest that the Federal Reserve will hike interest rates for longer, which could drag stocks lower and boost the US dollar.
On the other hand, should the Fed downwardly revise its quarterly inflation forecast, the markets could interpret this as a move towards a dovish pivot, which could lift stocks higher while pulling treasury yields and the US dollar lower.
Where next for the Nasdaq?
The Nasdaq continues to trade in a holding pattern limited on the upside by 12,120 and on the lower side by the 50 sma at 11,400. The RSI is above 50, keeping buyers optimistic about further upside. A rise over 12120 is needed to expose the 100 and 200 sma at 12400, and a rise above here opens the door to 12,900, the September high. On the downside, sellers could look for a full below 11,400 to open the door to 11,000 and 20 June low, ahead of 10600 the November low.
Tesla is set to open at a two-year low after investment bank Goldman Sachs cut its 12-month price target on the EV maker to $235 from $3,05 although the buy rating remains.
Delta rises 4.3% after forecasting that profits wilt double next year, compared to 2022, amid strong travel demand and a fall in non-fuel operating costs.
Coinbase rebounds from its all-time low as Bitcoin rises to a monthly high
FX markets – USD falls, EUR rises
The USD is falling, extending losses from yesterday after US inflation cooled by more than expected and as investors look ahead to the Federal Reserve interest rate decision later today.
EUR/USD is rising, capitalising on a weekend U.S. dollar, despite eurozone industrial production falling by 2%MoM, a larger than expected decline, after increasing 0.8% in September. The eurozone economy is likely to fall into contraction this quarter and a recession in Q1 2023 before recovering in Q2. The ECB monetary policy meeting is tomorrow.
GBP/USD is holding steady above 1.2350 as UK inflation cooled by more than expected to 10.7% YoY in November, below forecasts of 10.9% and down from the 40-year high of 11.1% in October. The cooling inflation data takes some pressure off the Bank of England, although the central bank it’s still expected to raise interest rates by 0.5% tomorrow.
GBP/USD +0.03% at 1.2360
EUR/USD +0.13% at 1.0650
Oil rises for a 4th day
Oil prices are rising for a fourth straight day, up 6% so far this week. Prices are rising after OPEC, and the International Energy Agency projected a rebound in demand in 2023 and US interest rate rises are expected to slow with cooling inflation.
Brent is back in backwardation, which is where front-month barrels trade at a higher price than later deliveries suggesting that concerns over supply are easing.
Looking ahead into the coming year, OPEC forecasts oil demand will grow by 2.25 million barrels per day to 101.8 million barrels per day. This could be higher depending on the picture in China, the world’s top importer.
Meanwhile, the IEA expects Chinese oil demand to recover in 2023 and raise its demand outlook forecast to 1.7 million barrels per day, totaling 101.6 million bpd.
WTI crude trades +0.5% at $75.85
Brent trades at +0.5% at $81.20
15:30 EIA crude oil inventories
19:00 FOMC rate decision