Dow Jones Forecast: Stocks fall on persistent concerns over higher rates for longer

Congress building
Fiona Cincotta
By :  ,  Senior Market Analyst

US futures

Dow futures -0.16% at 33907

S&P futures -0.23% at 4309

Nasdaq futures -0.23% at 14662

In Europe

FTSE -1% at 7609

Dax -1.05% at 15400

  • Hawkish Fed worries linger after last week’s FOMC meeting
  • US government shutdown woes hit sentiment
  • USD rises, extending gains into an 11th week
  • Oil rises on tight supply worries

Hawkish Fed concerns linger after last week’s FOMC meeting

US stocks are heading for a lower open, extending losses from last week on concerns over the Fed’s hawkish stance and worries over a U.S. government shutdown.

The three leading indices on Wall Street head into the final week of September on a negative note, which seems fitting for the month. September is typically a negative month for US equities. The Nasdaq100 has been the hardest hit and is set to fall just shy of 6% across September, potentially its worst monthly performance since last December.

The latest leg lower has come after the Federal Reserve signaled that it may raise interest rates again this year and ease rates by less next year.

In addition to a hawkish Fed, the ongoing budget standoff in the Federal government is also weighing on sentiment. The government is set to run out of money for its operations at the start of October, and Democrats and Republicans in Congress warn that a deal may not be reached. Even a plan for a 45-day extension to give legislators more time is coming up against resistance. Washington's latest budgetary showdown comes just a few months after the US debt ceiling crisis, which brought the US economy almost to the brink of default.

Looking ahead, the US economic calendar is quiet today. Instead, the focus will be on Fed speakers, with Neel Kashkari due to hit the airwaves later. Looking ahead, the economic calendar is relatively quiet across the week, with the main focus being on US core PCE, the Fed's preferred gauge for inflation, which could make or break the Fed’s more hawkish stance.

Corporate news

Amazon announced that it is looking to invest up to $4 billion in artificial intelligence group Anthropic to boost its position in the AI race.

The entertainment sector is also likely to be in focus on news that the union representing Hollywood writers and major studios and streaming services have negotiated the deal to end a strike that has lasted four months.

Dow Jones forecast – technical analysis.

The Dow Jones has fallen below 34000, the round number, and the August low, which, combined with the RSI below 50, keeps sellers hopeful of further losses. Support can be seen at 33850, the 200 sma, with a break below here opening the door to 33600, the July low. Any recovery would need to rise above 34000 to extend gains towards 34300 the 100 sma.

dow jones forecast chart

FX markets –USD rises, EUR falls

The USD is rising modestly, extending gains into an 11th straight week with a rally of this magnitude not seen since 2014. The dollar is being supported by the prospect of higher interest rates for longer following the Fed’s update last week. Minneapolis Fed president Neel Kashkari is due to speak later.

EUR/USD is edging lower at the start of the week after ten straight weeks of declines amid growing concerns over the outlook for the eurozone economy. PMI data on Friday showed that the eurozone economy most likely contracted in the third quarter. German IFO business climate index deteriorated for a fifth straight month in September, falling to 85.7 from 85.8 in August. In a statement, the IFO said pessimism regarding the coming months eased slightly, suggesting that the German economy could have bottomed out.

GBP/USD falls to a 6-month low, extending last week's sell-off after the Bank of England unexpectedly left interest rates on hold. After 14 straight interest rate increases, the central bank pressed pause as UK inflation unexpectedly cooled to 6.7% and amid rising concerns over the economic outlook. Friday's PMI data shows that the UK's dominant service sector contracted sharply in September, while the manufacturing sector improved but remained deep in contraction.

EUR/USD -0.16% at 1.0630

GBP/USD -0.10% at 1.2223


Oil edges higher on tight supply worries.

Oil prices are heading modestly higher at the start of the week as the focus remains on the tight supply outlook following a temporary ban by Russia on fuel exports.

The market continues to digest Russia's ban on diesel and gasoline exports, which comes to a market that is already concerned about tight supply after Saudi Arabia and Russia extended production cuts to the end of the year. These worries are offsetting demand-side concerns that the Fed's hawkish stance of higher rates for longer could slow the economy and hit the demand outlook.

Attention this week will be on China's PMI data, which is expected to move above 50, the level that separates expansion from contraction for the first time since March. The data is due on Saturday and comes after figures showed that China's oil demand increased by 9.3 million barrels per day last week thanks to a gradual recovery in jet fuel demand.

WTI crude trades +0.4% at $89.69

Brent trades +0.128% at $92.06

Looking ahead

14:00 ECB President Lagarde to speak

15:30 US Dallas Fed Manufacturing

23:00 Fed Kashkari to speak

Related tags: US Open Indices Dow Jones USD Oil

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