S&P500 Forecast: SPX falls as the Fed rally runs out of steam

US futures

Dow futures -0.24% at 37398

S&P futures -0.2% at 4755

Nasdaq futures -0.28% at 16768

In Europe

FTSE +0.8% at 7620

Dax -0.08% at 16770

• Fed rally slows ahead of Friday’s core PCE
• US consumer confidence data is due
• FedEx falls after cutting sales guidance
• Oil rises for a third day 

Rally stalls near the all-time high

US stocks are pointing to a modestly weaker start after gains in the previous session. The NASDAQ and the Dow have reached record highs, and the S&P500 is near after an impressive rally this month fueled by expectations that the Federal Reserve will cut interest rates in early 2024.

Fed speakers have been broadly pushing back on these expectations in recent days, with Atlanta Fed President Raphael Bostic saying that there was no urgency to begin reducing rates due to the resilience of the broader economy.

Today's move lower isn’t large enough to suggest that the markets are listening to the Fed back peddle the dovish FOMC meeting, but more a case of the rally higher running out of steam. The next main catalyst for the market is likely to be Friday's core PC data, the Fed’s preferred gauge for inflation. The market could drift until then.

Consumer confidence data is due shortly and is expected to rise to 104, up from 102. Rising consumer confidence often points to rising household spending.

Corporate news

FedEx is set to tumble over 10% on the open after the bellwether and delivery giant cut its full-year revenue guidance and posted weaker-than-expected quarterly profits.

General Mills is set to fall over 4% as the food processing firm cuts its full-year forecast amid a slower volume recovery in Q2 and an ongoing challenging consumer landscape.

S&P500 – technical analysis

The S&P 500 has risen above 4750 November high but failed to push further towards 48017, the all-time high reached in January 2022. With the RSI in deeply overbought territory, the move higher looks stretched. Immediate support can be seen at 4750, with a break below here opening the door to the 4700 round number and 4630, the April 2022 high. Should 4750 hold, buyers will look to continue grinding higher to 4817 and fresh all-time highs.

FX markets – USD rises GBP/USD falls

The USD is edging high but remains near a four-month low, with the next big catalyst expected to be Friday's core PCE. Until then, the greenback may struggle to make any decent-size moves.

As expected, BoJ left interest rates in negative territory and said it would continue with its yield curve control measures to support the economy. The central bank gave no clues on its plans for monetary policy tightening next year.

EUR/USD is fooling, giving back yesterday's games despite German consumer confidence improving on it by more than expected. Heading into the new year, GfK consumer confidence raised -25.1 up from 27.6.

GBP/USD is falling off the week than expected inflation. CPI eased to 3.9%, down from 4.6%, and was below forecasts of 4.4%. The data points to the BoE being rather cautious in the MPPC meeting last week. The market expects the central bank to cut interest rates by 145 basis points next year, which may be optimistic, but it does seem more realistic than the Bank of England's silence on the matter.

EUR/USD -0.3% at 1.0962

GBP/USD -0.56% at 1.2650

Oil holds yesterday’s gains.

Oil prices are extending gains as tensions rise over the Red Sea. While oil supply is not directly affected by the attacks in the Red Sea, the risk premium is keeping the price elevated.

The US Naval Mission to return security to the area after the Houthi attacks failed to ease concerns with ships still looking to reroute around the Cape of Good Hope.

Looking ahead, EIA inventory data will be in focus and come following the API stockpile figures showing an unexpected rise in inventories.

WTI crude trades +1.75% at $75.25

Brent trades +1.5% at $80.46