S&P500 Forecast: SPX rises as US CPI falls for the first time in 6 years

US futures        

Dow futures -0.18%, S&P futures 0.22%  & Nasdaq futures 1%

European futures

FTSE 0.12%,  DAX -0.26%

• US stocks rally amid cooling inflation
• CPI -0.4% MoM, in the first monthly decline since 2020
• IBM tanks on revenue miss & US banks beat
• Oil rises further on US-Iran tensions

U.S. Stocks Jump After Cooler Inflation Data; Warsh Testimony in Focus

U.S. stocks are set to open sharply higher after June inflation came in cooler than expected, easing immediate concerns over further Federal Reserve tightening as earnings season gets underway.

U.S. CPI slowed to 3.5% year-on-year in June from 4.2% in May, below expectations of 3.8%. On a monthly basis, CPI fell 0.4%, marking the first monthly decline since 2020.

The drop in headline inflation was driven largely by the biggest fall in gasoline prices since 2022, with fuel prices declining almost 10%.

Meanwhile, core CPI, which strips out food and energy prices, also surprised to the downside, easing to 2.6% from 2.9%. Markets had expected core inflation to remain unchanged.

The softer inflation data is likely to be welcomed by Federal Reserve officials, reducing the immediate pressure for further rate hikes. However, the recent rebound in oil prices and renewed U.S.-Iran tensions could yet complicate the inflation outlook if higher energy costs persist.

Following the release, Treasury yields moved lower as investors scaled back expectations of a near-term Fed rate hike.

Attention now turns to Federal Reserve Chair Kevin Warsh, who testifies before Congress later today. In his prepared remarks, Warsh reiterated that the Federal Reserve has no tolerance for persistently elevated inflation, reaffirming the central bank's commitment to returning inflation to its 2% target.

Corporate Movers

IBM is tumbling 19% in pre-market trading after second-quarter results highlighted a significant shift in enterprise spending away from higher-margin software towards hardware infrastructure.

The company reported revenue of $17.2 billion, missing forecasts of $17.86 billion. Management said enterprise customers had reprioritised IT budgets towards hardware amid structural supply constraints and rising memory costs, weighing on software demand.

JPMorgan Chase is edging lower despite reporting another set of record quarterly results.

The bank reported earnings per share of $7.70, comfortably ahead of the $5.55 consensus estimate, while revenue rose to $57.35 billion, beating expectations of $50.61 billion and marking a 28% increase from a year earlier.

Equity trading revenue surged 86% amid elevated client activity, while investment banking fees climbed 30% to $3.3 billion, the highest level since 2021.

On the consumer side, JPMorgan continued to paint a resilient picture of the U.S. economy. Combined debit and credit card spending rose 10% year-on-year, while the bank also lowered its expected charge-off rate on card loans.

S&P 500 Forecast – Technical Analysis

The S&P 500 continues to trade above its rising trendline and both the 50-day and 200-day SMAs, keeping the broader technical picture firmly bullish.

Buyers will look for a move above resistance at 7,580 to challenge the record high at 7,615. A break above this level would create fresh record highs and bring 7,650 and 7,700 into focus.

On the downside, initial support is seen at 7,450 around the 50-day SMA, followed by horizontal support at 7,350 and the rising trendline.

FX Markets – Dollar Falls

The U.S. dollar is weakening after both headline and core inflation came in below expectations, reducing immediate pressure on the Federal Reserve to raise interest rates.

Attention now turns to Federal Reserve Chair Kevin Warsh's congressional testimony, where investors will look for further clues on the outlook for inflation and monetary policy.

EUR/USD is rising on the weaker dollar and expectations that the ECB could deliver one further rate hike this year, potentially as soon as September, after raising rates in June while maintaining a data-dependent stance.

GBP/USD is also moving higher as the softer dollar offsets comments from Bank of England Governor Andrew Bailey. Bailey warned that renewed Middle East tensions point to continued geopolitical uncertainty but also reiterated that the UK's biggest economic challenge remains weak growth.

Oil Rises as U.S.-Iran Hostilities Escalate

Oil prices are extending gains and are now trading around 10% higher for the week at fresh monthly highs as the conflict between the U.S. and Iran intensifies.

The U.S. has reimposed a naval blockade on Iranian ports, while renewed exchanges of fire have heightened concerns over energy flows through the Strait of Hormuz.

Shipping activity through the Strait has slowed sharply, with only a handful of vessels transiting the waterway over the past two days, marking the lowest level in two months.

The geopolitical risk premium continues to build as markets increasingly consider the possibility that Iran could suspend negotiations until after the U.S. midterm elections, a scenario that could keep oil prices elevated for an extended period.