S&P500 Forecast: Stocks rise despite inflation & spending rising

US futures

Dow futures +0.45% at 35046

S&P futures +0.2% at 4500

Nasdaq futures +0.00% at 15463

In Europe

FTSE +0.14% at 7483

Dax +0.61% at 16004

• US core PCE rises to 4.2% from 4.1%
• US jobless claims eased to 228k from 232k
• Salesforce rises 5.6% after lifting its guidance
• Oil rises after stockpile draw 

US core PCE rises to 4.2%

US stocks are pointing to a stronger open as investors digest strong earnings from Salesforce in addition to the latest US core PCE data.

Core PCE, the Federal Reserve’s preferred measure for inflation, ticked higher to 4.2% YoY in July, up from 4.1% and in line with expectations. Meanwhile, personal income rose 0.2%, less than the 0.3% forecast, but personal spending jumped 0.8%, up from 0.5%.

The data highlights the struggle that the Fed could have to get inflation back towards its 2% target, particularly while the jobs market remains solid and consumers are spending.

Meanwhile, initial jobless claims unexpectedly fell to 228k from 232k in the previous week, highlighting resilience in the jobs market. That said, the data comes after JOLTS figures and ADP payroll data came in weaker than expected.

These figures are the latest insight into the health of the US economy, providing insight ahead of tomorrow’s non-farm payrolls and FOMC meeting later in September.

The Fed has raised interest rates to 5.25%-5.5%, a two-decade high, and could be close to the end of the hiking cycle. Jobs data has shown some signs that the labour market could be starting to cool. However, inflation is proving to be sticky, which supports the view that the Fed could still hike again this year.

The market still only sees a 10% probability of a rate hike in September. The market is now seeing a November hike as around 50/50 probability.

Corporate news

Salesforce rises almost 6% pre-market after the software group lifted its annual revenue outlook amid strong demand for its cloud products.

Dollar General slumps 15% after the discount retailer cut its annual same-store sales forecast as it sees customers remaining squeezed from still high inflation and a pull-back in discretionary spending.

Crowdstrike rises after the cyber security firm posts better than expected Q2 results thanks to its AI-powered cybersecurity platform.

S&P500 forecast – technical analysis

The S&P500 is extending its rebound from 4335 August low, rising above the 20 & 50 sma, which, combined with the RSI above 50 keeps buyers hopeful of further gains. Buyers will now look towards 4600 and fresh 2023 high. Meanwhile, sellers could look for a break below 4470 the 50 sma to negate the near-term uptrend. A break below 4340 would create a lower low.

FX markets – USD rises, EUR falls

The USD is rising following to day’s data drop as a tick higher in inflation supports an additional hike.

EURUSD is falling amid rising fears of stagflation in the region. Inflation remained unchanged in August at 5.3%, defying expectations of 5.1%. However, recent data has shown weak growth raising questions over whether the ECB will be able to hike again in September. The ECB minutes showed that policymakers were also concerned about stagflation.

GBPUSD is falling despite hawkish comments by BoE’s Chief Economist Huw Pill. Pill warned that interest rates would likely need to stay higher for longer in order to tame inflation.

EUR/USD -0.50% at 1.0867

GBP/USD -0.35% at 1.2680

Oil rises for a sixth day despite weak China data

Oil is extending gains for a sixth consecutive day, boosted by a larger-than-expected drawdown in US stockpiles and output cuts by OPEC. Meanwhile, China’s manufacturing activity could limit gains.

The China manufacturing PMI was 49.7 in August, up from 49.3 in July but remains in contraction territory, raising concerns over the health of China’s economy as growth falters.

EIA data showed on Wednesday that US stockpiles fell by a larger-than-expected 10.6 million barrels last week, pointing to robust demand.

However, tight supply is keeping the price buoyant as Saudi Arabia is expected to extend its voluntary oil production cut for another month, which is in addition to the cuts agreed by OPEC.

WTI crude trades +0.8% at $80.60

Brent trades  +0.8% at $82.84.56

Looking ahead

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