Dow Jones Forecast: DJIA muted on rate cut uncertainty

US futures

Dow future -0.01% at 39,800

S&P futures -0.07% at 5307

Nasdaq futures -0.24% at 18630

In Europe

FTSE -0.35% at 8396

Dax -0.35% at 18696

• US stocks slip modestly lower amid a quiet calendar
• Fed speakers support higher rates for longer
• Macy’s, Lowe’s beat forecasts
• Oil slips falls on worries over the demand outlook

More Fed speakers in focus 

US stocks are heading for a weaker open after Federal Reserve officials cautioned against rate cuts and despite upbeat earnings from retailers such as Macy's and Lowe's.

Despite inflation cooling in April, Federal Reserve officials have adopted a cautious tone surrounding interest rate cuts. Policymakers have given away few clues on the timing of rate cuts this year, and several have said that they would like to see more evidence that inflation is cooling towards the 2% target before loosening monetary policy.

The market is currently pricing in just one 25 basis point rate cut this year and a 68% probability of a second rate cut before the end of the year.

Given today's quiet U.S. economic calendar, attention will be focused on Federal Reserve speakers, including Fed governor Christopher Waller, Atlanta Fed President Raphael Bostic, and New York Fed president John Williams.

Corporate news

Traders are showing some caution ahead of Nvidia's earnings, which will be released after the close tomorrow and could be a litmus test for the success of the AI boom. Nvidia trades  0.7% higher pre-open.

Lowe’s is set to open around 3% higher after beating expectations even as consumers spent less on DIY. The home improvements retailer posted EPS of $3.06 versus the $2.94 expected, on revenue of $21.36 versus the $21.12 billion forecast. However, this was a year-over-year sales decline down from $22.3 billion in the same period a year earlier, as customers bought fewer pricier items.

Macy's is set to open higher after earnings beat estimates, a sign of progress in its turnaround strategy. The department store posted EPS of $0.27 versus the $0.15 expected, on revenue of $4.85 billion against the $4.86 billion expected. Macy's is set to close around 150 Macy's stores and open new Bloomingdale and Bluemercury stores.

Palo Alto Networks is set to open 8% lower after the cyber security firm’s Q4 billing forecasts disappointed high expectations. The company faces weakness in spending by clients concerned with the uncertain economic environment.

Dow Jones forecast – technical analysis.

The Dow Jones has extended its recovery from 37700, the May low, and has risen to a peak of just above 40,000. The price is consolidating just below 40,000. Buyers will look to take out 40,000 to extend gains to fresh ATHs towards 40,500. Support can be seen at 39294, last week’s low and the February high. Below here, the 50 SMA comes into play at 38,850.

FX markets – USD rises, GBP/USD falls

The USD is rising amid uncertainty over when the Federal Reserve may start cutting interest rates. A lack of data so far this week keeps the focus on Fed speakers ahead of tomorrow's FOMC minutes.

EUR/USD is falling after German PPI fell by more than expected to -3.3%, down from -2.9%. However, losses could be limited amid doubts over whether the ECB will cut rates again in July after an expected June cut.

GBP/USD is falling ahead of a speech by Bank of England Andrew and tomorrow's CPI data. CPI is expected to cool to 2.1% YoY, down from 3.2%, and comes after Kantar data showed that grocery inflation cooled to 2.4%, its slowest level since October 2020. Investors will be watching BoE’s Bailey for further clues over the timing of a possible BoE rate cut.

Oil falls on demand concerns.

Oil prices are falling, extending losses from the previous session amid worries that higher US interest rates for longer could hurt economic activity in the world's largest oil-consuming country this year. However, losses could be limited as demand is expected to recover as rates increase over this summer.

Meanwhile, demand from China was also looking weak after reports showed that China's oil demand fell 3% month on month to 14.6 million barrels per day in April.

Looking ahead, attention will be on US inventories, which are expected to fall by 0.9 million barrels for the week ending May 17th, up from a 2.5 million barrel draw during the previous week.