Dow Jones Forecast: Stocks mixed as treasury yields rise, China worries resurface

US futures

Dow futures +0.20% at 34866

S&P futures -0.07% at 4512

Nasdaq futures -0.28% at 15463

In Europe

FTSE +0.14% at 7483

Dax +0.61% at 16004

• China services sector falls to an 8-month low
• Goldman Sachs lowers US recession probability
• Airbnb & Blackstone to join the S&P500
• Oil hovers around a 10-month high 

China data fuels risk-off trade

US stocks are pointing to a mixed open with growth stocks underperforming as treasury yields tick higher. Meanwhile, the Dow is pointing to a modestly higher open.

Risk-off trade has intensified after Chinese services PMI data missed forecasts, raising concerns that recent Chinese stimulus has failed to revive consumption in a meaningful way in the world’s second-largest economy. US-listed Chinese stocks are trading lower pre-market.

Meanwhile weakness in European PMI data adds to the downbeat mood but also highlights the resilience of the US economy.

In contrast, US economic data has been holding up relatively well despite the Federal Reserve’s aggressive hiking cycle.  Goldman Sachs has lowered its probability of a recession in the US in the next 12 months to 15% from 20% as inflation cools and following Friday’s labour market report.

While the market is not expecting the Fed to hike rates in September, and the case against a November hike is also significant. However, the Fed could keep interest rates elevated for longer before considering a rate cut.

Looking ahead, US factory orders for July are due and are expected to fall -2.5% MoM after rising 2.3% MoM in June.

Corporate news

Airbnb rises 5.7% pre-market, and Blackstone jumps 3.8% as the two companies are set to join the S&P500.

Oracle rises 1.9% after analysts at Barclays upgraded the stock to overweight from equal weight citing AI tailwinds.

Dow Jones forecast – technical analysis

The Dow Jones rebounded from the 100 sma & rising trendline support, rising above the 50 & 20 smas before running into resistance at 35100 last week. The price has since fallen away from that level and is testing support at the confluence of the 50 & 20 sma around 34775. The RSI is neutral. Should the support hold, buyers will look for a rise above 35100 to extend the run higher towards 35500, the mid-August high, and 35680, the 2023 high. On the flip side, a break below 34775 brings 34575 in play ahead of 34195 the 100 sma.

FX markets – USD rises, GBP falls

The USD is rising, hitting its highest level against a basket of currencies since March, tracking yields higher. Weak data from China and the eurozone has highlighted the resilience of the US economy.

EURUSD is falling sharply against the USD after eurozone PMI data showed that the economic downturn in the eurozone was worse than expected, suggesting that the bloc could drop back into recession again in the second half of the year. The composite PMI fell to 46.7 from 48.6.

GBPUSD is falling against a stronger USD after data showed that business activity in the UK contracted in August. The composite PMI fell to 49.5 from 50.9, marking the sharpest business slowdown in 7 months.

EUR/USD -0.60% at 1.0735

GBP/USD -0.65% at 1.2525

Oil hovers around a 10 month high

Oil is edging slightly lower after hitting a 10-month high earlier in the week. Oil prices have been boosted by the expectations that Saudi Arabia will extend its 1 million barrels a day into a fourth month in October. The extension would be in addition to OPEC+ cuts already in place. A move like this would highlight Saudi Arabia’s desire to keep oil prices supported at higher levels.

Meanwhile, concerns over the demand outlook are mixed. On the one hand, weakness in China is hurting the demand outlook after Chinese services PMI fell by more than expected. The weak data suggests that Beijing’s support measures are having little impact.

On the other hand, a downward revision from Goldman Sachs over the likelihood of a recession is lifting the demand outlook.

WTI crude trades -0.3% at $85.24

Brent trades -0.13% at $82.88.36

Looking ahead

15:00 US factory orders