S&P500 Forecast: Stocks slip as more bank earnings roll in

US futures

Dow futures -0.1% at 34540

S&P futures -0.16% at 4513

Nasdaq futures -0.25% at 1567

In Europe

FTSE -0.11% at 7404

Dax -0.20% at 16050

• US retail sales rise 0.2% vs 0.5% expected
• MS profits fall 18%, BAC Q2 profits rise
• USD falls further
• Oil edges higher ahead of stockpile data 

US retail sales rise by less than expected

US stocks are falling modestly as investors digest weaker-than-expected US retail sales and the latest earnings from corporate America.

US retail sales rose 0.2% MoM in June after rising an upwardly revised 0.5% in May. Estimates had pointed to a 0.5% increase in June.

The data, whilst weaker than expected, was still positive, suggesting that the Federal Reserve could be managing to engineer a soft landing for the US economy, whereby inflation is reined in without tipping the economy into recession.

Goldman Sachs cut the odds of a recession in the US to 20%, down from 25%, citing recent data which has reinforced their confidence that the Fed will succeed in lowering inflation to an acceptable level without causing a recession.

Attention will now be on industrial production data, which is expected to be flat in June after falling -0.2% in May.

In addition to economic data, US Q2 earnings will be in focus from Bank of America and Morgan Stanley, which come following earnings from Wells Fargo, JP Morgan, and Citigroup on Friday. While JPM and WFG benefitted from the Fed’s rise in interest rates, Citigroup saw profits tumble as deal-making dried up.

Corporate news

Bank of America rises pre-market after posting a rise in Q2 profits thanks to higher interest rates boosting NII. Its trading arm also fared better than expected.

Morgan Stanley falls after the banking giant’s profits dropped 18% in Q2 as deal-making revenue weakened from the investment bank arm.

S&P500 forecast – technical analysis

The S&P500 continues to hover around 15-month highs above 4500. The RSI has tipped into overbought territory so buyers should be cautious. A rise above 4550, the September 21 high, could see the buyers target 4600 round number and 4640, the March 2022 high. On the downside, support can be seen at 4495 the weekly low, ahead of 4460, the June high.

FX markets – USD falls, GBP, EUR rise

The USD is falling amid expectations that the Federal Reserve is close to reaching the end of its rate hiking cycle. The rise in retail sales failed to help the USD.

EURUSD is rising, amid a weaker USD, and as the euro finds support from hawkish ECB commentary. ECB policymakers have reiterated support for another rate hike in July, and the market is pricing in a further hike in September. The ECB rate decision is next week.

GBPUSD is hovering around $1.31 after UK grocery inflation cooled further to 14.6%. This marks the fourth straight monthly decline and down from 167.1% in June. The data comes ahead of UK CPI data tomorrow.

EUR/USD +0.07% at 1.1235

GBP/USD +0.1% at 1.3099

Oil holds steady ahead of stockpile data

Oil prices are edging higher after steep losses on Monday. Both Brent and WTI settled 1.5% lower after weak Chinese data hit the demand outlook.

After Chinese GDP missed forecasts, several major US banks have revised lower their China GDP forecast for this year.

Today, oil is befitting from the weaker USD and from hopes that the US economy will avoid a recession. Goldman Sachs now only sees a 20% probability of a recession in the US, the world’s largest consumer of energy.

Meanwhile, the restarting of oil production in some Libyan oil fields is keeping pressure on oil prices. Three fields were shuttered last week amid protests.

Looking ahead, attention turns to stockpile data due later today, which is expected to show that stockpiles and inventories fell last week.

WTI crude trades +0.4%t $74.25

Brent trades at +0.25% at $78.63

Looking ahead

14:15 US industrial output

21:30 API crude oil inventories