S&P 500 Forecast: SPX rises on AI boost

US futures                                         

Dow futures 0.24%, S&P futures 0.33%  & Nasdaq futures 0.83%

In Europe                                                                        

FTSE 0.527% & DAX 0.34%

• US stocks rise with AI driving gains
• The US government shutdown continues
• AMD jumps 20% on OpenAI deal
• Oil rises after OPEC+ meeting

Stocks keep grinding higher on rate cut expectations

 U.S. Stocks are rising, building on gains from last week, on a flurry of AI-related dealmaking, and after weak labour market data last week boosted expectations of a rate cut this month.

The gains in stocks came despite the ongoing federal government shutdown, which has stretched into its sixth straight day. Investors look ahead to a quiet week for the U.S. economy, with the focus on the FOMC minutes and Federal Reserve chair Jerome Powell's speech on Wednesday and Thursday, respectively.

Despite the shutdown delaying data, including nonfarm payrolls, on Friday, the market has looked at alternative data points, such as the ADP payroll, which reinforced expectations that the Fed will reduce rates by 25 basis points at its next meeting. The market is pricing in an 87% chance of two 25-basis-point cuts before the end of the year.

October 15 is a key date on which military personnel receive their pay, providing motivation for a deal to be reached before that date to avoid the potential issue of 1.3 million uniformed military personnel not receiving payment.

Q3 earnings will also kick off next week and could test the fragility of this recent rally.

Corporate news

AMD has surged over 30%, boosting the broader semiconductor sector on news that it has signed a deal with OpenAI, the maker of ChatGPT, which could lead to tens of billions of dollars in revenue.

Critical Metal Corp jumped 75% premarket on reports around a potential Trump administration investment in the group. The White House has held talks about taking an equity stake in a company developing a Greenland rare earth deposit.

Crypto stocks are in focus as Bitcoin, the world's largest digital currency, reached an all-time high of over $125,000 over the weekend. Coinbase, Strategy, and Riot Platforms are among those rising.

S&P 500 forecast – technical analysis

The S&P 500 trades in a rising channel, having pushed above 6700 to reach a record high of 6750 at the end of last week. The price is hovering just below there at 6734. The RSI is in overbought territory so some consolidation could be on the cards. Buyers will look to extend gains towards 6800 as the next logical level. Immediate support is seen at 6700 and 6600 below and 6360 the September low. A fall below 6150 negates the longer-term uptrend.

FX markets – USD rises, EUR/USD falls

The USD is rising, recovering after weakness last week, boosted by the falling yen and despite the ongoing U.S. government shutdown.

EUR/USD is falling after French Prime Minister Sebastien Lecornu resigned after just 27 days in office, adding to France's political crisis. Successive prime ministers have struggled to pass a budget through a fractured parliament, which includes unpopular spending cuts and tax increases aimed at reducing the budget deficit in France.

The GBP/USD is falling amid a stronger U.S. dollar, as weakness in the construction sector continues. Construction activity shrank for a ninth straight month in September. The construction PMI came in at 46.2 in September, up from 45.5 in August, but still below the 50 level that indicates a rate of expansion from contraction.

Oil rises after the OPEC+ meeting.

Oil prices are rising, recovering some of last week's 7% decline after OPEC+ agreed to increase oil production, but by less than feared.

OPEC+ agreed on Sunday to increase oil output by 137,000 barrels per day, the same as October’s increase, but significantly ahead of what the market had been expecting for November.

The modest production update also comes as a time of rising Venezuelan exports, the resumption of Kurdish oil flows via Turkey, and as Saudi Arabia left the official selling price for Arab light crude to Asia unchanged.

Expectations are for weak demand fundamentals in the final quarter of the year, which could mean that any increase in oil prices will be short-lived.

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