S&P500 Forecast: SPX rises despite rising Fed rate hike expectations

US futures        

Dow futures 0.83% S&P 500 futures 0.75%  & Nasdaq futures  0.84%

European futures

FTSE 0.74%,  DAX  0.44%

• US stocks rise despite hotter core CPI
• Core CPI rose 0.3% MoM vs 0.2% expected
• September Fed rate hike expectations rise to 90%
• Oil eases lower but remains above $100

U.S. Stocks Rise Despite 90% Fed Hike Odds After CPI

U.S. stocks are rising on Friday, taking the August CPI inflation data in their stride, even as expectations for a Fed rate hike next week continue rising.

The data showed U.S. CPI rose 3.4% year-on-year, in line with expectations and unchanged from July. This was a 0.4% month-on-month reading, also in line with estimates.

Core CPI eased to 2.4%, down from 2.5%, also in line with expectations and marking the smallest rise in core CPI since March 2021. However, core CPI on a monthly basis was a standout, coming in modestly hotter than expected at 0.3% versus 0.2%.

The inflation data comes after last Friday’s stronger-than-expected non-farm payroll report.

Following the data, and looking ahead to next week’s FOMC rate decision, the market has increased expectations for a Fed rate hike to 90%, up from 60% yesterday.

Despite this increase, S&P 500 stocks are still rising. However, there has been a significant climb in 2-year Treasury yields, which are up around 5 basis points.

The surprise for the markets would now be if the Fed were to remain on hold next week. If the Fed does do this, Warsh would need to give a solid reason, or there could be a test of the 5% yield on the 10-year Treasury.

Corporate Movers

Oracle, the software giant, is up over 6% after beating expectations for fiscal Q1. Oracle posted adjusted EPS of $1.92 on revenue of $19.35 billion. Expectations had been for earnings of $1.74 on revenue of $19.14 billion. Revenue from cloud infrastructure more than doubled to $7.4 billion.

Adobe, the maker of Creative Cloud, slid 4% after current-quarter guidance was roughly in line with estimates. Adjusted earnings are expected to be $6.30 to $6.35 per share, compared with expectations of $6.32. Revenue for the period is expected to range from $6.8 billion to $6.85 billion.

S&P 500 Forecast – Technical Analysis

The S&P 500 ran into resistance at a record high of 7,810 before moving lower to test the 50 EMA at 7,600. The price has recovered slightly above this support zone, which is also the June high.

Should the 50 EMA hold, buyers would look towards 7,700 as a point of resistance ahead of 7,750, the September high, before attention turns to 7,810 and fresh record levels.

A meaningful close below the 50 EMA would expose the 100 EMA at 7,470. Below here, attention turns to 7,300, the July low, and 7,225, the June low.

FX Markets – Dollar Rises, EUR/USD Falls

The USD is inching higher after U.S. CPI added to expectations that the Federal Reserve will hike interest rates next week.

EUR/USD is falling on USD strength after the ECB hiked interest rates yesterday by 25 basis points in line with expectations. Staff projections also showed that the inflation forecast was upwardly revised for 2027 and 2028, while growth was also upwardly revised for this year and next.

GBP/USD is falling amid U.S. dollar strength despite stronger-than-expected UK GDP data. Figures showed that the UK economy grew 0.4% month-on-month in July, well above the 0% forecast and also up from 0.3% growth in June.

Growth in July was helped by a strong performance in the services sector, particularly computer programming. The data comes ahead of the BoE rate decision next week.

Oil Is Set to End the Week Above $100?

Oil prices are falling on Friday but are still set for gains of over 7% this week, while U.S. diesel prices hit a record high amid attacks along Middle East shipping routes and fuel supply disruption fears.

Brent had climbed to $109 a barrel yesterday. Today, the price has eased back to $103, while WTI is at $99 a barrel, its highest level since May this year.

The price has eased back slightly on reports that foreign ministers in the Middle East are trying to work towards a temporary deal with Iran to manage shipping through the Strait of Hormuz.

However, the near-term risk remains to the upside for oil prices, particularly after the International Energy Agency warned that the oil supply gap will widen further amid a delayed return to normal flows in the Gulf.

The IEA said world supplies are expected to decline by 5.7 million barrels per day, or around 6%, up from a drop of 4% seen previously.