S&P 500 Forecast: SPX sees a tame response to in-line CPI data

US futures

Dow futures +0.13% at 36450

S&P futures -0.06% at 4617

Nasdaq futures +0.03% at 16223

In Europe

FTSE -0.05% at 7548

Dax -0.27% at 16770

• US CPI 3.1 YoY vs 3.1% expected
• Fed interest rate decision is tomorrow
• Alphabet losses antitrust case vs Epic Games
• Oil holds steady amid opposing forces

CPI eases to 3.1% down from 3.2%

US stocks are rising after US inflation data cooled in line with forecasts.

CPI eased to 3.1% YoY, down from 3.2% in October. The market reaction has been relatively muted and has not been the big CPI response that perhaps the market was hoping for. The big question here is what the Fed will do with these numbers.

The data comes ahead of the Federal Reserve kicking off its two-day meeting ahead of its interest rate decision on Wednesday. The Fed is widely expected to leave interest rates on hold at 5.25% to 5.5%, a 22-year whole high. The focus of the meeting will be very much on the Fed's plans for possible rate cuts in 2024.

Data shows that the tight monetary policy and aggressive rate hikes are having the desired impact of cooling inflation. However, the Fed will likely adopt a cautious tone, not wanting to fuel market expectations of significant rate cuts until they are confident that the war against inflation has been won.

If the Fed fails to push back against these middling CPI numbers, then it's almost giving the green light for a rally into the end of the year.

The market is pricing in around an 80% probability that the Fed could cut rates in May next year.

Corporate news

Google parent Alphabet is expected to slip on the open after a court ruling against the tech giant in an antitrust case against Fortnite maker Epic Games. The court decision is a result of a multi-year battle where Google was accused of leveraging its dominant position to extract excessive profits from app developers.

Oracle is set to open around 8% lower after fiscal Q2 results missed revenue forecasts. Q2 revenue was $12.9 billion, up 5% unruly, but missed consensus estimates of $13.05 billion. Meanwhile, EPS came in at $1.34 ahead of consensus estimates of $1.33. Oracle attributed the shortfall in revenue to a challenging economic environment and heightened competition.

S&P 500 forecast – technical analysis

The S&P 500 finally pushed above resistance at 4606, the July high, and is grinding towards 4635, the March 2022 high. Above here 4700, the round number, is in focus, and 4745, the November 2021 high. On the downside, support can be seen at 4606, the July high, with a break below here opening the door to 4545, the September high.

FX markets – USD falls EUR/USD rises

The USD is falling after US inflation data, which cooled in line with forecasts, supporting the view that rate hikes are working and the Fed is likely to start cutting rates next year.

EUR/USD is rising after better-than-expected German ZEW economic sentiment data. Economic confidence unexpectedly improved in December to 12.8 up from 9.8 and ahead of forecasts of 8.8. Morale improved amid increasing expectations of an ECB rate cut in the medium term. The data comes ahead of Thursday's ECB rate decision, where the central bank is expected to leave rates on hold at 4%. Attention will be firmly on guidance as the market prices in a March rate cut.

GBP/USD Is inching higher after a mixed UK jobs report. While unemployment held steady at 4.2%, wage growth slowed at the sharpest pace in two years, below forecasts at 7.3%. This will bring some relief to the BoE ahead of Thursday's interest rate announcement. However, it's unlikely to change policymakers' current stance - that rates need to stay high for longer. Attention turns to tomorrow's GDP data.

EUR/USD +0.25% at 1.0790

GBP/USD +0.05% at 1.2550

Oil steady amid opposing forces

Oil prices are holding steady as increased tensions in the Middle East are being offset by a weak fundamental backdrop.

An attack on a commercial chemical tanker off Yemen has reminded the market that tensions in the region remain live, which is keeping oil prices supported. However, sentiment is still negative owing to the challenging fundamental backdrop.

Demand growth is expected to slow in 2024, although the extent of this is unclear due to varying forecasts from OPEC and the IEA. Data from China this week has highlighted the fragility of the economic recovery in the world’s largest oil importer.

Meanwhile, the OPEC+ deal to limit supply underwhelmed the market.

Looking ahead, the next catalyst is the US inventory report later today, which is expected to show 1. 5 million barrel drawdown in crude oil stockpiles

WTI crude trades -0.08% at $71.35

Brent trades -0.08% at $76.14