S&P500 Forecast: Stocks recover as treasury yields ease, Senate deal optimism

US futures

Dow futures +0.3% at 33730

S&P futures +0.39% at 4290

Nasdaq futures +0.38% at 14601

In Europe

FTSE -0.1% at 7620

Dax +0.07% at 15261

• Stocks bounce back after yesterday's losses
• US government shutdown deal in focus
• GBPUSD falls to 6-month low
• Oil rises with tight supply back in focus

Stocks rebound after yesterday’s losses

US Stocks are set to open higher, bouncing back after steep losses in the previous session, as treasury yields ease and investors watch developments regarding the US funding bill.

A pullback in the 10-year treasury yield has provided some relief to stocks after all three major indices closed over 1% lower yesterday as the 10-year treasury yield hit a 16-year high.

Investors focusing on the prospect of higher interest rates for longer and what the impact might be on the US economy comes as Fed speakers have supported a further interest rate hike this year and have suggested that interest rates could remain elevated until the end of next year.

So far, September has been the worst monthly performance for US equities this year, and stocks are also eyeing their first quarterly decline in 2023.

The US economic calendar has been quite quiet. U.S. consumer confidence fell to 103 in September, down from an upwardly revised 108.7 last month, amid concerns about a government shutdown and stubbornly high inflation.

The US Senate has made headway on a bipartisan measure to avoid a government shutdown, which is now just days away. The US Senate will begin to debate a bill that could secure short-term funding for the government and avert a federal shutdown by keeping the government funded until November 17^th.

Looking ahead, attention is on US durable goods orders, which are expected to fall 0.5% MoM in August after falling -5.2% in July.

Corporate news

Amazon will be in focus as the FTC and 17 states filed an antitrust lawsuit against the e-commerce giant in Seattle yesterday.

Costco falls pre-market despite better-than-expected Q4 earnings. EPS was $4.86 on $78.9 billion in revenue.

S&P 500 forecast – technical analysis.

The S&P500 ran into support at 4260 and is trying to stabilize. Sellers will need to take out this level in order to expose the 200 sma at 4200. The RSI supports further downside while it remains out of oversold territory. Meanwhile, any recovery could struggle at the weekly high of 4340, with a rise above here exposing the 100 sma at 4390.

FX markets –USD rises, GBP falls

The USD is extending its rally further, boosted by the prospect of US interest rates remaining higher for longer. The US dollar rose to a 10-month high against its major peers, with the Federal Reserve saying it will raise interest rates once more this year and keep them higher for longer next year.

EUR/USD is falling to a six-month low against the stronger U.S. dollar as investors digest weaker-than-expected German consumer sentiment data. The GFK consumer confidence gauge slipped to -26.5, down from -25.6 on lower income expectations and still high inflation. The data came after German Ifo business sentiment fell for a fifth straight month in September, painting a grim picture of the outlook for the eurozone’s largest economy.

GBP/USD is falling to a fresh six-month low as markets are pricing in the BoE already concluding its rate hiking cycle. The pound is set for its biggest monthly drop since August 2022 down by more than 4%, as money markets suggest there are no more BoE rate hikes priced in this year. Traders are also expecting the central bank to start cutting rates next summer. Last week, the BoE kept rates on hold for the first time since December 2021 on signs that the UK economic growth is slowing and after a surprise cooling in inflation.

EUR/USD -0.11% at 1.0550

GBP/USD -0.10% at 1.2146

Oil rises as tight supply concerns persist

Oil prices are rising as the market focuses on tight supply, which is overshadowing concerns of an economic slowdown in the US should interest rates stay higher for longer.

API data showed that US crude oil stockpiles rose by 1.6 million barrels, defying analysts' expectation of a draw of 300,000 barrels.

However, markets are concerned about US crude stockpiles at the Cushing storage hub, Oklahoma, which have fallen below the minimum operating levels. This highlights the tightness in the market from OPEC supply. OPEC meets again next week to discuss output.

Encouraging data from China is also lifting the oil price. Chinese industrial profits jumped sharply in August, rising for the first time in more than a year. The increase in profits suggests that demand in China, the world’s largest oil importer, may be improving.

Meanwhile, the prospect of higher US interest rates for longer could limit the upside for oil prices amid concerns this could cause a slowdown in the US economy.

Looking ahead, attention will be on EIA stockpile data, which is due later today.

WTI crude trades +1.2% at $91.16

Brent trades +0.9% at $93.35

Looking ahead

13:30 US durable goods orders

15:30 EIA Oil inventories