S&P 500 Forecast: SPX tumbles after hotter inflation

US futures

Dow futures -1,3% at 38360

S&P futures -1.26% at 5146

Nasdaq futures -1.15% at 17950

In Europe

FTSE -0.15% at 7920

Dax -0.2% at 18031

• US CPI rises to 3.5% YoY in March, up from 3.2%
• The market is pricing in a 2 rate cuts this year
• Nvidia falls into correction territory
• Oil holds steady amid Middle East jitters and higher oil inventories

US inflation rises to 3.5%

US stocks are pointing to a fall open as hotter-than-expected US inflation data cemented expectations of high rates for longer.

US CPI rose by 3.5% YoY, up from 3.2% and ahead of forecasts of 3.4%. Core CPI rose 3.8% YoY, defying expectations of a fall to 3.7%.

The data comes after Friday's stronger-than-expected jobs data amid growing signs of strength in the US economy.

Hot inflation and a robust economy give the Fed few reasons to start cutting interest rates early. Following the release, treasury yields soared, with the 10-year yield briefly topping 4.5%, a new YTD high, as traders rein in rate cut expectations.

The market is now pricing in just two rate cuts this year, down from three a few weeks ago. Meanwhile, the probability of a June rate cut was lowered to 22%. The first rate cut is now b fully priced for September, which was pushed back from July.

The minutes from the Fed's March meeting are also due to be released later today. They could offer more insight into the central bank's plans for interest rates this year.

At the meeting, the Fed reiterated its outlook for 75 basis points worth of cuts in 2024. However, this now looks unlikely, given the hot inflation and the strength of the US economy.

Earning season will kick off with U.S. banks tomorrow. Investors will be looking for numbers that justify the record highs in equities.

Corporate news

Delta is flying higher after an upbeat outlook for the current quarter and after Q1 earnings beat estimates thanks to buoyant demand.

Nvidia is falling and has entered correction territory, falling 10% from its recent ATH of $950. There is no clear reason for the selloff, which could be profit taking given the stock is up 200% in 12 months.

Taiwan Semiconductor Manufacturing is set to rise over 1% on the open as the world's largest chipmaker said sales in March jumped sharply as it benefits from increasing demand for chips from the AI industry.

S&P 500 forecast – technical analysis.

S&P 500 faced rejection at 5225 and has rebounded lower, testing 5150, last week’s low. Should sellers gain traction, a break below this level could open the door to 5100, the February high. Meanwhile, bulls will look for a rise above 5225 to extend gains .

FX markets – USD falls, EUR/USD rises

The USD has jumped higher following the CPI data, tracking yields higher. The repricing of the Fed’s ability to cut rates three times is lifting the USD.

USD/CAD is rising on USD strength and ahead of the BOC interest rate decision shortly. The central bank is expected to leave rates on hold at 5%. Policymakers are likely to want to see more evidence of inflation cooling before acting. Inflation in Canada has cooled, and Friday's labour market data shows signs of weakness. Markets are pricing in a 78% probability of a 25 basis point cut in June, which is up from around 70% last month. The first rate cut is fully priced in in July.

USD/JPY has risen above 152.00 after the US CPI report, putting the yen on intervention watch. Earlier in the day, BoJ’s Ueda reiterated the accommodative outlook for the central bank.

Oil holds steady as Middle East jitters offset an oil inventory draw.

Oil prices are holding steady after two days of losses as concerns over the Middle East offset a build in US crude stockpiles.

Peace talks for a Gaza ceasefire remain gridlocked, keeping oil traders on edge. The ongoing war in the Middle East keeps supply concerns elevated. As the conflict continues, the risk is that Iran could be drawn into the war, which would raise the risk premium on oil significantly.

Meanwhile US crude stockpiles climbed by 3.03 million barrels ahead of the 2.4 million barrels that were forecast.

The US government also increased its forecasts for US crude oil output, now guiding for an increase of 280,000 barrels per day in 2024, up by 20,000 barrels.