S&P500 Forecast :Stocks falls as treasury yields remain elevated

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Fiona Cincotta
By :  ,  Senior Market Analyst

US futures

Dow futures -0.23% at 33323

S&P futures -0.25% at 4264

Nasdaq futures -0.36% at 14720

In Europe

FTSE -1.27% at 7412

Dax -0.87% at 14830

  • US 10-year yields hover around a 16-year high
  • Middle East contagion fears build
  • Solar Edge Technologies plunges on disappointing Q4 guidance
  • Oil rises for a second straight week

Yields hover around a multi-year high

U.S. futures are pointing to a weaker open as investors continued to digest Federal Reserve Jerome Powell's comments yesterday and as treasury yields hover near a 16-year high.

Speaking at the Economic Club of New York yesterday, Jerome Powell said that US economy's strength and tight labour market could mean that higher interest rates are needed to control inflation. However, Jerome Powell also acknowledged that high yields tightening financial conditions are doing some of the work for the central bank.

Markets are not expecting the Fed to raise interest rates in November, with the Fed watch tool pricing in a 99% probability that the Fed will leave rates unchanged. Meanwhile, bets for a pause in December rose to 77%.

Following Powell's speech, US treasury yields briefly pushed over 5% for the first time since 2007. Today, they are trading slightly lower at 4.9392%.

In addition to central bank commentary, investors are also watching the conflict in the Middle East with growing signs that Israel could mount a ground invasion of Gaza soon. Such a move threatens to broaden the conflict across the Middle East.

Earnings are also in focus, with quarterly updates from American Express and Solar Edge Technologies under the spotlight.

Corporate news

American Express rises after the credit card giant posted stronger than expected Q3 results helped by resilient spending from wealthy customers. EPS came in at$ 3.30 up from $2.47 on revenue of $15.38 billion.

Solar Edge Technologies plunged 28% after the renewable energy company cut Q4 revenue guidance due to installation rates slowing in Europe. Sector peers such as Emphasize Energy, Sun Power and First Solar are set to fall heavily.

Hewlett Packard Enterprise is set to fall over 3% on the open after the computing services provider posted a disappointing outlook for profit.

S&P500 forecast – technical analysis.

After rebounding lower from the 50 sma earlier in the week the S&P500 is heading to test the 200 sma at 4250. The RSI supports further downside. Sellers will look to close the week below 4250 to bring 4200 the October low into focus. Should buyers successfully defend the 200 sma, buyers could look towards 4300 round number ahead of the 20 sma at 4310 to negate the near term selloff.

S&P 500 FORECAST CHART

FX markets –USD rises, GBP falls

The USD is steady after losses yesterday as investors continue to mull over Federal Reserve chair Jerome Powell's comments and as US treasury yield inches lower after reaching 5% earlier in the session.

EUR/USD is edging higher despite German PPI falling more than expected in September. Factory gate-level inflation fell by -14.7% annually, down from -12.6% YoY in August. On a monthly basis, PPI fell 0.2%, defying expectations of a rise of 0.4%. The data raises concerns over the demand environment in the eurozone's largest economy.

GBP/USD is holding steady but is set for a weekly decline after UK retail sales fell by more than expected, dropping -0.9% in September as consumer confidence plunges. The slowdown in demand suggests that households and consumers are starting to feel the impact of the Bank of England's 14 straight interest rate hikes. The Bank of England is not expected to raise interest rates at the November meeting, instead leaving them unchanged at 5.25%.

EUR/USD +0.13% at 1.0597

GBP/USD -0.00% at 1.2140

Oil rises for a second straight week

Oil prices are rising and are on track to book gains across the week, marking the second straight week of gains on fears of the Israel-Gaza conflict drawing in more countries in the Middle East and disrupting oil supply in the region.

Evidence is building that the Israeli troops could start a ground offensive in Gaza as soon as this weekend, pushing the geopolitical risk premium on oil higher even though the actual supply situation in the market remains unchanged.

Separately, oil prices are also being supported by news that Washington wants to buy 6 million barrels of crude to replenish emergency strategic petroleum reserves in December and January.

Helping to limit gains has been the temporary lifting of oil sanctions on Venezuela. However, any changes to production levels are likely to be gradual.

WTI crude trades +1.31% at $89.50

Brent trades +1.6% at $92.50

Looking ahead

14:00 Fed Harker speaks

17:00 Fed Mester speaks

 

 

 

Related tags: US Open USD Oil SPX 500

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