Dow Jones Forecast :Stocks rally after Fed cuts rates & GDP accelerates

US futures

Dow futures +0.26% at 35626

S&P futures +0.75% at 4600

Nasdaq futures +1.38% at 15716

In Europe

FTSE +0.4% at 7704

Dax +1.38% at 16350

• Fed to hike rates by 25 bps & is data dependent for September
• GDP, durable goods & jobless claims beat forecasts
• Meta jumps on top & bottom line beat
• Oil rises to 80.00 as US recession fears ease 

Fed staff no longer see a recession & GDP data beats

US stocks are set to open firmly higher after the Federal Reserve's interest rate announcement yesterday, strong data and as earnings continue to roll in. The Dow is on track to book a 14th straight winning session, which would mark a new record.

The Federal Reserve resumed its rate hiking cycle yesterday, raising interest rates by 25 basis points in line with expectations. The FOMC voted unanimously to lift the benchmark to 5.25 to 5.5% taking the cost of borrowing up to its highest level in more than two decades.

Federal Reserve chair Jerome Powell said that the central bank would determine future policy on a meeting-by-meeting basis and wouldn't be pinned down on whether it will raise hikes again in September. Powell said that it would be possible to hold rates steady in September, as well as possible to raise rates.

With two more inflation prints and two more non-farm payroll reports yet to be released before the September meeting means that there will be plenty of data for the Fed to pour over.

This means more focus than usual will be on economic data, with the full impact of hikes yet to be felt.

On the data from US GDP, data came is stronger than expected at 2.4% QoQ annualised, up from 2% previously and well ahead of the 1.8% forecast. US durable goods orders also jumped 4.7% MoM in June up from 2% in May. Jobless claims also improved to 221k, defying expectations of rise to 235k.

The data support the view of Fed staff that the US could avoid a recession.

In addition to central banks and data, US earnings continued to roll in.

Corporate news

Meta is rallying pre-market after better-than-expected revenue and earnings in Q2. Revenue rose 11% to $32 billion, vs $31.12 billion forecast. Ad revenue at Meta rose 12%, more than the 11% at Google. This has been attributed to benefits from investment in AI technology into services. EPS rose to $2.98 despite 10% jump in costs.

eBay falls 6% after disappointing with Q3 forecast, overshadowing better than expected Q2 results.

Southwest Airlines fell 6.5% after the carrier warned of rising labour costs for the year and softer pricing in the current quarter.

Dow Jones forecast – technical analysis

The Dow Jones is extending its rally for a 14^th straight day. It trades above a steep rising trendline, but the RSI is deeply overbought so buyers should be cautious. Resistance can be seen at 35875 the February 2022 high, ahead of 36,000. Sellers could look for a break below 35450 the April 2022 high to extend losses towards 34400 the December high.

FX markets – USD rises, EUR falls

The USD is rebounding from yesterday's losses after the Fed hiked rates, and the market bets that the Fed could soon be ending the rate hiking cycle. However, today’s stronger-than-expected data has boosted the USD back into positive territory.

EURUSD is falling after the ECB raised rates by 25 basis points but the language in the statement suggested that a September hike was now questionable. Christine Lagarde could reinforce the September hike in the press conference.

GBPUSD is falling as the USD rises. Strong growth in the US is in contrast to the UK where growth is subdued.

EUR/USD -0.24% at 1.1095

GBP/USD +0.05% at 1.2850

Oil rises on the improved demand outlook

Oil prices are rising after losses yesterday as concerns over tight supply and hopes of stronger Chinese demand overshadow a smaller-than-expected decline in inventory data yesterday.

The EIA crude oil inventory report showed that US oil stockpiles fell by less than expected, dragging oil prices lower in the previous session.

However, today, the price has rebounded as supply concerns buoy the market ahead of the OPEC+ meeting next week. The committee's demand outlook will be a key factor for Saudi Arabia as it decides whether to extend its voluntary output cut of 1 million barrels per day into a third month in September or not.

On the demand side, news that the Federal Reserve no longer sees a recession in the US is boosting the oil demand outlook. Fed Chair Powell said that staff economists have dropped the recession forecast that debuted in March.

The fact that the Federal Reserve is also nearing the end of its rate hiking cycle is also considered a positive for oil. It is not only due to USD weakness but also raises the likelihood of the US avoiding a recession.

WTI crude trades +1.1% at $79.74

Brent trades  +1.05% at $83.44