S&P500 Forecast: Stocks slip on inflation worries ahead of ISM services PMI

US futures

Dow futures +0.30% at 34540

S&P futures -0.37% at 4480

Nasdaq futures -0.37% at 15447

In Europe

FTSE -0.14% at 7425

Dax -0.1% at 15745

• Inflation concerns rise ahead of ISM services data
• Rising oil prices fuel inflation fears
• USD steadies around a 6-month high
• Fed Beige Book is due 

Inflation concerns rise

US stocks are heading lower, extending losses from the previous session as investors look cautiously ahead to ISM services data and weigh up inflation concerns.

The data is expected to show that the services PMI edged slightly lower to 52.5 in July, down from 52.7. in June. Continued strength in the dominant services sector could be considered inflationary. This, combined with elevated oil prices, could fuel bets that the Federal Reserve will keep interest rates higher for longer, which could put stocks under further pressure.

The data comes after Federal Reserve official Christopher Waller said that a September rate hike was looking unlikely, but the central bank would give itself more time to see if it needs to raise rates again before the end of the year.

Attention will also be on the US Beige Book, which could provide a snapshot of the US economy.

Meanwhile, rising oil prices are also dragging on market sentiment. Concerns are rising that the jump in oil prices to a year to day high could lift inflation and force the Fed to adopt a more hawkish stance.

Corporate news

Roku rises 10% pre-market after announcing that it will layoff 10% of its workforce as part of a cost cutting move.

C3.ai is due to report as the share price has rallied 180% so far this year thanks to the AI hype but also trades down around 30% from its June peak. Expectations are for loss per share of $0.12 on a 9.6% rise in revenue to $71.6 million.

S&P500 forecast – technical analysis

The S&P500 ran into resistance at 4540 and has been edging lower. The price is testing the 50 sma and the receding bearish bias on the MACD keeps buyers hopeful of losses. Sellers need to break below the 50 sma to test 4450, the June high and open the door to 4400. Should the 50 sma hold buyers could look for a rise towards 4540 and 4600 the July high.

FX markets – USD rises, GBP falls

The USD is edging lower after strong gains yesterday as the market considers that the Federal Reserve could keep interest rates higher for longer, keeping the USD supported.

EURUSD is rising but continues to trade around an 8-month low amid more weak data from the region. German factory orders dropped 11.7% MoM in July after rising 7.6% in June. Meanwhile, eurozone retail sales fell -0.2% MoM in July, more than the -0.1% expected. The data adds to mounting evidence that the region is heading towards recession.

GBPUSD is falling to a 3-month low against the stronger USD. Attention is on BoE Governor Andrew Bailey who is due to testify before the Treasury Select Committee, answering questions on inflation, monetary policy and the economic outlook.

EUR/USD +0.10% at 1.0735

GBP/USD -0.25% at 1.2540

Oil hovers around a 10-month high

Oil is holding steady around a 10-month high after rising over 1% in the previous session. Oil prices rallied on Tuesday after Saudi Arabia and Russia announced that they would extend their voluntary oil production cuts into December. The combined total of cuts is 1.3 million barrel per day, but these will still be reviewed on a monthly basis.

While supply concerns are supporting oil prices, the demand outlook is weaker. Concerns over slowing growth in China and weak manufacturing in the US and Europe point to a deteriorating demand outlook.

Attention now turns to API stockpile data, which comes after a much larger-than-expected draw in the previous week,

WTI crude trades -0.3% at $86.02

Brent trades -0.13% at $89.40

Looking ahead

15:00 BoC rate decision

15:00 US ISM services PMI