US open: Stocks slip in cautious trade ahead of the FOMC rate decision

US futures

Dow futures -0.01% at 34110

S&P futures -0.1% at 4005

Nasdaq futures -0.14% at 11816

In Europe

FTSE +0.03% at 7494

Dax -0.4% at 14430

Learn more about trading indices

Will the terminal rate rise?

US stocks are edging modestly lower as investors look ahead to the US Federal Reserve interest rate decision later today and as they attempt to gauge whether inflation has cooled sufficiently to encourage policymakers to slow the pace of rate hikes.

U.S. stocks rallied yesterday after inflation fell for a fifth straight month and the US dollar fell. However, the market still remains cautious over whether the Fed could remain resolute on continuing rate hikes.

A 50-basis point rate hike is priced in, and investors are more concerned over what signals policymakers could give about 2023 and when interest rate hikes could stop.

Let's not forget that inflation is still 3.5 times the Fed’s 2% target. Any signs that the Fed’s terminal rate is forecast to be over 5% would suggest that the Federal Reserve will hike interest rates for longer, which could drag stocks lower and boost the US dollar.

On the other hand, should the Fed downwardly revise its quarterly inflation forecast, the markets could interpret this as a move towards a dovish pivot, which could lift stocks higher while pulling treasury yields and the US dollar lower.

Where next for the Nasdaq?

The Nasdaq continues to trade in a holding pattern limited on the upside by 12,120 and on the lower side by the 50 sma at 11,400. The RSI is above 50, keeping buyers optimistic about further upside. A rise over 12120 is needed to expose the 100 and 200 sma at 12400, and a rise above here opens the door to 12,900, the September high. On the downside, sellers could look for a full below 11,400 to open the door to 11,000 and 20 June low, ahead of 10600 the November low.

Corporate news

Tesla is set to open at a two-year low after investment bank Goldman Sachs cut its 12-month price target on the EV maker to $235 from $3,05 although the buy rating remains.

Delta rises 4.3% after forecasting that profits wilt double next year, compared to 2022, amid strong travel demand and a fall in non-fuel operating costs.

Coinbase rebounds from its all-time low as Bitcoin rises to a monthly high

FX markets – USD falls, EUR rises

The USD is falling, extending losses from yesterday after US inflation cooled by more than expected and as investors look ahead to the Federal Reserve interest rate decision later today.

EUR/USD is rising, capitalising on a weekend U.S. dollar, despite eurozone industrial production falling by 2%MoM, a larger than expected decline, after increasing 0.8% in September. The eurozone economy is likely to fall into contraction this quarter and a recession in Q1 2023 before recovering in Q2. The ECB monetary policy meeting is tomorrow.

GBP/USD is holding steady above 1.2350 as UK inflation cooled by more than expected to 10.7% YoY in November, below forecasts of 10.9% and down from the 40-year high of 11.1% in October. The cooling inflation data takes some pressure off the Bank of England, although the central bank it's still expected to raise interest rates by 0.5% tomorrow.

GBP/USD +0.03% at 1.2360

EUR/USD +0.13% at 1.0650

Oil rises for a 4^th day

Oil prices are rising for a fourth straight day, up 6% so far this week. Prices are rising after OPEC, and the International Energy Agency projected a rebound in demand in 2023 and US interest rate rises are expected to slow with cooling inflation.

Brent is back in backwardation, which is where front-month barrels trade at a higher price than later deliveries suggesting that concerns over supply are easing.

Looking ahead into the coming year, OPEC forecasts oil demand will grow by 2.25 million barrels per day to 101.8 million barrels per day. This could be higher depending on the picture in China, the world's top importer.

Meanwhile, the IEA expects Chinese oil demand to recover in 2023 and raise its demand outlook forecast to 1.7 million barrels per day, totaling 101.6 million bpd.

WTI crude trades +0.5% at $75.85

Brent trades at +0.5% at $81.20

Learn more about trading oil here.

Looking ahead

15:30 EIA crude oil inventories

19:00 FOMC rate decision

From time to time, StoneX Financial Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.

As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.

City Index is a trading name of StoneX Financial Pty Ltd.

The material provided herein is general in nature and does not take into account your objectives, financial situation or needs.

While every care has been taken in preparing this material, we do not provide any representation or warranty (express or implied) with respect to its completeness or accuracy. This is not an invitation or an offer to invest nor is it a recommendation to buy or sell investments.

StoneX recommends you to seek independent financial and legal advice before making any financial investment decision. Trading CFDs and FX on margin carries a higher level of risk, and may not be suitable for all investors. The possibility exists that you could lose more than your initial investment further CFD investors do not own or have any rights to the underlying assets.

It is important you consider our Financial Services Guide and Product Disclosure Statement (PDS) available at www.cityindex.com/en-au/terms-and-policies/, before deciding to acquire or hold our products. As a part of our market risk management, we may take the opposite side of your trade. Our Target Market Determination (TMD) is also available at www.cityindex.com/en-au/terms-and-policies/.

StoneX Financial Pty Ltd, Suite 28.01, 264 George Street, Sydney, NSW 2000 (ACN 141 774 727, AFSL 345646) is the CFD issuer and our products are traded off exchange.