Wall Street Forecast: DJIA rises on hawkish Fed expectations & rising yields

US futures        

Dow futures -0.30% S&P 500 futures -0.30%  & Nasdaq futures  -0.50%

European futures

FTSE 0.02%,  DAX  -0.58%

• US stocks fall as Treasury yields rise
• US 10 year reclaims 5% and the 2 year hits a 27 month high
• USD climbs to a fresh 7-week high on hawkish Fed expectations
• Oil steadies at a two-week low

U.S. Stocks Open Lower as Oil and Yields Rise

U.S. stocks are opening lower on Wednesday, pressured by higher crude oil prices and rising government bond yields, as investors await further developments from negotiations in the Middle East and ahead of a key U.S.-China summit.

Oil prices and treasury yields remain key drivers. While the situation in the Middle East remains fluid, traders are awaiting updates from U.S. and Iranian officials following negotiations on the sidelines of the U.N. General Assembly on Tuesday.

Meanwhile, high energy costs stemming from the U.S.-Iran war, alongside increased AI spending, have led Federal Reserve policymakers to flag the need to keep interest rates higher for longer. Fed speakers this week have adopted a hawkish stance following last week's rate decision, when the Fed hiked rates by 25 basis points.

Fed Governor Michael Barr is due to speak later in the day, and his remarks will be scrutinised for clues over the outlook for interest rates. Traders are pricing in around a 50% chance that rates could be hiked by at least 25 basis points next month.

The US 10-year Treasury yield has reclaimed the 5% psychological level and 2 year yield has reachced its highest level in 27 months as investors brace for a period of rate hikes.

Attention will also be on the U.S.-China summit, with the Chinese president due to arrive in the U.S. today. The summit is expected to cover AI safety, as well as trade and rare earths.

Corporate Movers

KB Home, the home builder, fell more than 1% after its projections for fourth-quarter deliveries came in below expectations.

IonQ, the quantum computing stock, jumped 12% after the company said it had tested the industry's first real-time quantum error decoder. The new capability allows for quantum error correction across operations without slowing execution times.

Dow Jones Forecast – Technical Analysis

The Dow Jones trades within a descending channel and below the 50 EMA, which, combined with the RSI below 50, keeps the technical picture bearish.

Sellers will need to break below support around 51,500, the July low, and then 51,200, the lower band of the channel and September low, to create a lower low and extend the bearish move towards 50,400, the 200 EMA.

On the upside, buyers will need to rise above the upper band of the falling channel and the 50 EMA around 52,500 to bring 53,800 into focus, the September high.

FX Markets – Dollar Rises, EUR/USD Falls

The USD is rising to a fresh seven-week high on hawkish Fed commentary. Fed officials have warned that energy shocks and strong demand are fuelling inflation, meaning further rate hikes may be necessary to bring inflation back towards the 2% target.

EUR/USD remains under pressure despite stronger Eurozone PMI data. Political concerns in Germany and France's rising debt levels are weighing on the euro.

GBP/USD is trading at a 12-week low amid mixed UK PMI data and continued U.S. dollar strength. UK manufacturing activity unexpectedly expanded, although the service sector fell short of expectations, slowing to 51.7 from 52.5.

Oil Prices Steady at a Two-Week Low

Oil prices are modestly higher but remain around a two-week low on Wednesday, amid improving Gulf supplies and optimism over diplomatic progress in the Middle East.

News that Saudi Arabia is reopening its East-West pipeline has helped ease supply concerns. The crucial pipeline has enabled Saudi Arabia to continue exporting oil despite transit through the Strait of Hormuz remaining severely restricted.

Meanwhile, hopes surrounding diplomatic talks between the U.S. and Iran have also put pressure on oil prices. President Trump said the U.S. and Iran had very good talks on the sidelines of the U.N. General Assembly on Tuesday.

Iran has also said it could reopen the Strait of Hormuz within seven days if certain conditions are met by the U.S.

At the same time, U.S. crude inventories rose by 1.8 million barrels in the week to September 18.