Dow Jones Forecast: DJIA jumps despite a hawkish Fed hike

US futures        

Dow futures 1.2% S&P 500 futures 1.29%  & Nasdaq futures  1.68%

European futures

FTSE 0.80%,  DAX  0.88%

• US stocks rally, recovering yesterday’s losses
• The Fed hikes rates by 25 bps and signals more hikes to come
• 10-year Treasury yields ease as oil prices slip
• Oil eases for a second straight day as supply fears ease

Stocks rally after FOMC rate decision

U.S. stocks have opened higher, following a two-day slide, as lower oil prices and falling Treasury yields have brought some relief after the Federal Reserve's interest rate decision.

The Fed announced its decision at 2 pm ET at a time when elevated Treasury yields, inflation and ongoing hostilities in the Middle East have kept risk appetite limited.

The Fed hiked interest rates by 25 basis points to 3.75%-4%, a move that was almost 93% priced in. As a result, the focus was on whether policymakers would validate expectations of a second rate hike this year.

Federal Reserve Chair Kevin Warsh, who was picked by President Trump on the expectation he would cut interest rates, could have raised credibility concerns if the Fed had not hiked rates.

The main focus was on Warsh's comments, the dot plot, and updated growth and inflation forecasts. Given Warsh's preference for limited forward guidance, the dot plot and forecasts provided more of a clue to the market.

The markets wanted to see signs that the Fed is getting inflation under control. Otherwise, Treasury yields could continue rising, which would be damaging for equity demand.

Corporate Movers

Lennar, the home builder, reported disappointing Q3 results, sending the shares over 1% lower. Lennar's earnings were $1.19 per share, short of the $1.28 a share expected and nearly half what it reported this time last year.

Nike is rising 1.5% after announcing the appointment of Alexandre Arnault, deputy CEO of LVMH's Moët Hennessy, to its board. Investors are hopeful he will help the beleaguered athletic shoe giant recover following recent weakness.

Dow Jones Forecast – Technical Analysis

The Dow Jones ran into resistance at a record high of 54,745 before falling lower, trading in a descending channel and breaking below the 50 EMA to find support at the 100 EMA at 51,500, the July low, before recovering higher.

Should the recovery continue, buyers will look to rise above the 52,000 round number and the 50 EMA at 52,660. Above here, the upper band of the falling trend channel comes into play at 53,000. It would take a rise above 53,800 to create a higher high, changing the structure of the chart.

For now, the downtrend remains intact. Sellers, supported by the RSI below 50, will look to break below the 51,500 support to expose the 200 EMA at 50,325 and, below here, 50,000.

FX Markets – Dollar falls, GBP/USD falls

The USD is easing back from a six-week high reached in the previous session after the Federal Reserve hiked rates and projected a continued commitment to curbing inflation. Treasury yields are falling as oil prices are also slipping.

EUR/USD is rising modestly but still remains down 1% so far this week, owing to the stronger U.S. dollar and despite the ECB hiking rates last week whilst also lifting growth and inflation forecasts.

GBP/USD is falling after the Bank of England left interest rates unchanged at 3.75% for a sixth meeting, in line with expectations. The vote split was 6-3, as expected, and Bank of England Governor Andrew Bailey insisted there is still limited evidence of higher energy prices passing through to wage increases and underlying inflation.

Oil eases for a second day

Oil prices are falling further on Thursday, extending losses on reports of additional Saudi crude exports through Oman, which is helping to ease supply concerns.

A quick return to service for Saudi Arabia's East-West pipeline has also helped pull oil from weekly highs, as has news that Saudi Arabia maintains shipments via Oman, further easing supply concerns. An increase in these shipments helps to offset disruption caused by attacks on the East-West pipeline to the Red Sea.

Oil prices do still remain above $100 a barrel amid ongoing tensions in the Middle East.