US open: Stocks mixed after retail sales rise & jobless claims fall

US futures

Dow futures +0.1% at 31127

S&P futures -0.17% at 3940

Nasdaq futures -0.27% at 12080

In Europe

FTSE +0.35% at 7305

Dax -0.12% at 13013

Euro Stoxx -0.26% at 3560

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Investors continue assessing the Fed’s next move

US stocks are set to open modestly lower after small gains in the previous session and as investors digest the latest data points shedding light on the health of the US consumer and labor market. Meanwhile, fears of hot inflation and a hawkish Fed remain.

Retail sales were a mixed bag. Sales rose by 0.3% MoM in August, ahead of forecasts, but the previous July’s figures were downwardly revised by 0.4%. Meanwhile, core sales also fell 0.3%

Meanwhile, the labor market was again showing its strength, with initial jobless claims falling to 213k, down from a downwardly revised 218k and well below expectations of 226k. This marked the fifth straight week of falling claims.

The data didn’t provoke a strong reaction with investors keeping one eye firmly on the FOMC meeting next week.

The market is pricing in a 75 basis point rate hike next week. But, expectations for a total 1% rise have been steadily building. The market is currently pricing in a 26% probability of a 1% rate hike next week.

We expect the Fed to go 75 basis points in the September FOMC; the bigger question is going to be what follows. Are we now talking 4.5% or even 5% by the end of the year? Stocks could struggle to make any headway before next week’s meeting, given that the Fed could turn more hawkish. At the end of the day, any dovish pivot has been pushed well off the radar.

Corporate news:

Netflix rose pre-market after Evercore ISI upgraded its stance to outperform, up from inline. Analysts consider that the ad-supported subscriber tier could lift the share price by 30%.

Union Pacific and CSX rose 3% and 2.5%, respectively on news that a tentative agreement has been reached, avoiding the threat of a US rail strike.

Where next for the Dow Jones?

The Dow Jones failed to retake the falling trend line resistance and now trades below the 20 & 50 sma. The 20 is crossing below the 50 sma in a bearish signal, and the RSI is in bearish territory. Sellers will look towards 30630, the May low, with a break below this level opening the door to 30000, the key psychological level. On the flip side, buyers will need to rise over the 20 sma at 32000 to bring 32670, the weekly high, back into play.

FX markets – USD rises, GBP falls

The USD is edging higher in quiet trade after jumping earlier in the week. Expectations are building for a 100 basis point hike,

EUR/USD is holding steady as investors digest weaker than expected German wholesale inflation data. Inflation slipped to 18.9% YoY, down from 19.5%. Separately German regulators warned that gas shortages were likely this winter.

GBP/USD is falling after a YouGov survey showed that consumer confidence has fallen to the lowest level since the depth of the pandemic. Attention is turning to UK retail sales tomorrow.

GBP/USD -0.2% at 1.1509

EUR/USD +0.04% at 0.9985

Oil edges lower

Oil prices are edging lower, paring small gains in the previous session, as demand concerns and a stronger USD weigh on the price.

While supply concerns are a constant backdrop, demand concerns are also prevalent, meaning that oil prices have hovered around current levels for two weeks.

This week the IEA warned that oil demand growth would stall in the final three months of the year, which, combined with the USD sitting at recent highs, is pulling oil lower.

This week’s surprise CPI data has paved the way for a more aggressive Federal Reserve. Higher rates for longer will slow economic growth. Meanwhile, a stronger USD makes oil more expensive for buyers with other currencies.

WTI crude trades -1.1% at $87.00

Brent trades -1% at $92.50

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Looking ahead

US industrial production

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