Dow Jones Forecast: DJIA extends last week's gain ahead of Fed speakers

US futures

Dow future 0.22% at 39595

S&P futures 0.3% at 5236

Nasdaq futures 0.16% at 18230

In Europe

FTSE -0.30% at 8406

Dax -0.24% at 18715

US stocks rise, and treasury yields fall ahead of Wednesday’s CPI report
Fed speakers are in focus amid a quiet calendar
Arm rises on AI chip development reports
Oil rises but remains near a 2-month low

Stocks rise, treasury yields fall ahead of Wednesday's CPI report

US stocks are heading for a higher open, extending gains from last week as treasury yields fall and investors look ahead to Wednesday's inflation data. The CPI reading could provide more clues on the likelihood of an interest rate cut in 2024.

Last week, the S&P 500 and the Nasdaq registered their third straight week of gains. Also, the Dow Jones posted its best weekly performance since mid-December. Indices have performed well thanks to stronger-than-expected earnings reports, and amid signs the US labour market could be starting to cool, supporting bets that the Federal Reserve will cut interest rates this year.

Inflation data on Wednesday is expected to show that inflation CPI rose 0.4% MoM in April but cooled annually to 3.6%. Core CPI is expected to rise 0.3%. Sticky inflation could unnerve the market and raise questions over the Fed’s ability to cut rates. However, cooling inflation could bring some relief.

Before Wednesday's inflation report, investors will watch monthly PPI and comments from Federal Reserve officials, including Cleveland Fed President Loretta Mester, who will speak later today.

Recent Fed officials have supported the view that interest rates may need to stay high for longer to bring inflation back to 2%.

Corporate news

Apple is set to open 1% higher on reports that the iPhone maker is close to an agreement with Open AI to integrate the startup's technology into the iPhone and operating system.

Arm is rising after reports in Nikkei Aisa that the chip designer plans to develop AI chips early next year.

Intel is set to open over 1% higher after the Wall Street Journal reported that the tech giant was in advanced talks with Apollo Global to build a $11 billion chip plant in Ireland.

Dow Jones forecast – technical analysis.

The Dow Jones has extended its recovery from 37,700 May low, rising above the 50 and 100 SMA and resistance at 39241, the February high. This combined with the RSI above 50 keeps buyers hopeful of further upside. Buyers will look for a rise to 40,000 and fresh all time highs. Support can be seen at 39241 and 39,000 the round number. Below here the 50 SMA is at 38785 but stronger support can be seen at 38500.

FX markets – USD falls, GBP/USD rises

The USD is falling as it tracks treasury yields lower. All eyes are on this week’s CPI data for further clues over when the Fed could cut rates. Fed speakers are in focus today.

EUR/USD is rising to 1.08 amid a quiet economic calendar and a weaker USD. However, the upside could be limited by expectations that the ECB will start cutting interest rates in June. That said, the downside is also protected by optimism that the eurozone economy could be starting to recover. Tomorrow’s German inflation and ZEW economic sentiment data is due.

GBP/USD is rising amid a weaker USD and despite the more dovish than expected BoE rate decision last month. Comments by chief economist Huw Pill could also limit the upside, as he considered that rate cuts could come soon. There is no high-impact UK update today; however, industry data shows that companies plan to wait and increase wages by 4% over the coming months, in line with three months ago, suggesting firms are not willing to increase wage bills further.

Oil rises but remains near its 2-month low.

Oil prices are rising but remain near a two month low amid a weaker USD and as investors weigh up mixed Chinese inflation data.

Chinese consumer price inflation was stronger than expected. However, producer price inflation fell for the 19th straight month, raising concerns over the strength of the recovery as the government struggles to boost demand.

Meanwhile, uncertainty around when the Fed may start to cut interest rates remains a problem for oil bulls. High rate for longer could slow growth, hurting the oil demand outlook. However, today’s drop in the USD is helping oil prices as a weaker USD means that oil is weaker for buyers of other currencies.

Meanwhile, the OPEC+ meeting is coming into focus. OPEC+ could extend the voluntary cuts over into H2. However, over the weekend, Iraq’s oil minister raised questions over whether Iraq would agree to further voluntary cuts.

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