Nasdaq 100 forecast: Oil and yields apply pressure ahead of CPI

US index futures and European markets were struggling to stay afloat after a weaker handover from Asia overnight, ahead of an eventful second half of the week. Rising oil prices and elevated bond yields were once again weighing on investor sentiment, keeping mild pressure on all sorts of risk assets. The US dollar retreated further despite the oil gains and stronger payrolls data on Friday, suggesting the US dollar debasement trade is still alive. There are at least three key events to watch as we head into the second half of the week: the ECB’s interest-rate decision on Thursday, US CPI on Friday and the latest developments in crude oil. We maintain a cautious Nasdaq 100 forecast ahead of these events and as rising bond yields undermine the appetite for low yielding assets, including growth stocks.

 

Brent crude oil hits $100

 

Chief among investor worries is the continued rise in oil prices, with Brent futures now breaking the $100 barrier.  The main driver for oil remains the conflict in the Middle East, with concerns that the recent re-escalation could disrupt regional oil supplies.

 

Financial markets are concerned about a sustained rise in energy prices as that would put renewed pressure on inflation, which creates all sorts of problems – especially for central banks and specifically those where there is political pressure to cut rates, namely the Fed.

 

Higher oil prices can push inflation higher while simultaneously squeezing consumers and businesses. If crude continues to rise, markets may therefore start pricing in more rate hikes for central banks like the ECB and the Fed.

 

For equities, that would be a clear headwind, especially growth stocks  - many of which are constituents of the Nasdaq 100 index.

 

Yields grind higher ahead of inflation data

 

Meanwhile, it is worth keeping an eye on bond yields which continue to rise amid inflation concerns, while in the US it was the stronger than expected labour market that provided the latest gains. 

 

Much of the focus will be on US 10 and 30 year bond yields this week, which have moved higher as markets reopened after the extended Labor Day weekend. 

 

 

Investors are turning their attention to key inflation data that could help determine the Federal Reserve’s next move on interest rates.

 

The immediate focus is Thursday’s producer price index report for August. Economists expect the monthly PPI measure to have risen 0.4%, after remaining unchanged in July.

 

But it is CPI, due on Friday, that will potentially move the markets more meaningfully. 

 

Headline CPI is expected to have risen by 0.4% month on in August, while the year over year rate is seen unchanged at 3.4%. Core CPI is expected to have edged a bit lower to 2.4% y/y vs 2.5% the month before. 

 

If inflation data turns out to be in line, or worse, higher than expected, then this is likely to put renewed pressure on risk assets as it would cement expectations of a hike from the FOMC’s September 16 meeting. 

 

Technical Nasdaq 100 forecast and key levels to watch

 

 

The ongoing consolidation phase could turn into a correction if the macro picture doesn’t improve soon. Key support is seen around 29,000 to 29,200 on our US Tech 100 chart, which is derived from the underlying Nasdaq 100 futures.

 

Below that, the trend line will come into focus and then sold support at 28.190ish.

 

Resistance is currently offered around the 29,680 area. Above that you have the 30K level, which coincides with the bearish trend line, making it a key hurdle. A break above that would certainly be a bullish development when you consider this lengthy consolidation here.

 

So, this week could prove decisive for risk assets. Ahead of it, investors are watching oil prices.  If oil continues to push past and remain above $100 for Brent, stocks may continue to struggle.