S&P 500 Forecast: SPX inches higher ahead of Kevin Walsh's first FOMC rate decision

US futures                                          

Dow futures -0.1%, S&P futures -0.09%  & Nasdaq futures 0.63%

In Europe                                                                        

FTSE -0.1% & DAX -0.12%

• U.S stocks mixed ahead of FOMC rate decision
• Expectations are for rates to be unchanged & attention on new Fed Chair Warsh
• Chip stocks recover after yesterday’s selloff
• Oil is at a 3-month low on supply normalization optimism

U.S. Stocks Rise Ahead of Fed Decision

U.S. stocks are moving higher on Wednesday as chip stocks rebound and investors look ahead to the Federal Reserve's interest rate decision, the first under new Chair Kevin Warsh.

Policymakers are widely expected to leave interest rates unchanged at 3.50%-3.75%. The meeting comes against a backdrop of inflation running at 4.2%, more than double the Fed's 2% target, and a labour market that continues to show resilience. However, oil prices have fallen sharply to a three-month low near $80 per barrel amid optimism surrounding a peace agreement in the Middle East.

Given that no change in rates is expected, attention will focus on the Fed's economic projections, the dot plot and whether policymakers choose to remove the easing bias from their previous statement.

Investors will also be watching Chair Kevin Warsh's first press conference for clues on his views regarding inflation, unemployment and the broader economic outlook. He may choose to adopt a relatively neutral tone given the difficult position he faces.

President Trump selected Warsh in part because of his preference for lower interest rates. However, inflation remains well above target and several policymakers continue to discuss the possibility of further tightening. Markets are currently pricing a 43% probability of a 25-basis-point rate hike in December.

If Warsh pushes back on market expectations for further rate hikes, this could be considered a dovish signal. However, if he acknowledges falling oil prices but remains focused on elevated inflation and a resilient labour market, this could be viewed as support for a high-for-longerrate outlook.

In addition to the Fed, the US-Iran memorandum of understanding is expected to be formally signed on Friday. While falling oil prices suggest the market is increasingly confident that the Strait of Hormuz will reopen, details of the agreement have yet to be released, leaving some uncertainty in the outlook.

Corporate Movers

Chip stocks are rebounding after weakness in the previous session. Intel, Broadcom, Micron Technology and AMD are all trading between 1.5% and 3.5% higher in pre-market trading.

SpaceX remains in focus after rising 3% on Tuesday and overtaking Amazon by market capitalisation, becoming the fifth-largest listed company in the United States.

S&P 500 Forecast – Technical Analysis

The S&P 500 has extended its recovery from the 50-day SMA, rising to 7,570 before easing back to 7520 at the time of writing.

Buyers will look to extend gains towards the record high at 7,620. A break above this level would bring fresh record highs into focus towards 7700.

Momentum is showing signs of slowing. Initial support can be seen at the 20-day SMA around 7,475. A break below this level would expose 7,350, the May swing low, and the 50-day SMA near 7,300. A move below this area would weaken the near-term bullish outlook.

FX Markets – USD Firms Ahead of Fed, GBP/USD falls

The U.S. dollar is edging higher as Treasury yields rise ahead of the FOMC decision. With rates expected to remain unchanged, investors are focusing on Warsh's press conference and the Fed's updated projections for clues regarding the future path of interest rates.

EUR/USD is under pressure from the stronger dollar despite eurozone inflation data showing core inflation was revised higher to 2.6% in May. The data comes after last week's ECB rate hike and highlights the challenge facing policymakers as inflation remains elevated.

GBP/USD is falling amid a stronger USD and after UK inflation came in softer than expected. Headline CPI remained unchanged at 2.8% year-on-year, below forecasts for a rise to 3.0%, while monthly inflation slowed to 0.2% from 0.7% previously. The data supports the Bank of England's cautious approach and, combined with falling energy prices, reduces the urgency for further policy tightening.

Oil at a 3 Month low as Markets Price in Supply Normalisation

Oil prices remain close to three-month lows as investors continue to assess the implications of the U.S.-Iran peace agreement and growing expectations of oversupply next year.

The market's base case is that the Strait of Hormuz will reopen and that oil flows will gradually return towards pre-conflict levels. This eases supply concerns that had supported prices higher in recent months.

The International Energy Agency has warned that global oil markets could move into significant surplus next year, with supply growth expected to outpace demand growth.

Additional downside pressure is coming from weaker demand signals. China's crude oil imports remain subdued, while improving Middle East supply prospects are helping to offset recent inventory declines.

According to API data, U.S. crude inventories fell by 8.3 million barrels in the week ending June 12, exceeding expectations for a 4.6 million barrel draw. However, the market's focus remains on future supply rather than current stock levels.