S&P500 Forecast: Stocks drop as treasury yields surge

US futures

Dow futures -0.56% at 33780

S&P futures -0.7% at 4330

Nasdaq futures -0.92% at 14849

In Europe

FTSE -0.3% at 7656

Dax -1.2% at 15500

• US treasury yields rise to a 16-year high
• US JOLTS job openings are due
• USDJPY is on Yen intervention watch
• Oil is falling a for a fourth straight session

Treasury yields rise to 16-year high

US indices are heading lower on Tuesday as US bond yields continue to surge higher after several Federal Reserve officials reiterated their support for keeping interest rates higher for longer.

Two Federal Reserve officials on Monday said that monetary policy will need to remain restrictive for some time in order to bring inflation back down to the central bank’s 2% target. These comments come after US ISM manufacturing PMI data showed signs of improving, rising to 49, well ahead of the 47.7 forecast and up significantly from 47.6 in August.

US 10-year treasury yields are up 2.5 basis points on the day at 4.708% this was just mildly off the peak of 4.710% reached earlier in the day, its highest since October 2007.

A combination of upbeat data, high oil prices, high US yields, and a strong dollar gives equity markets little reason to be upbeat.

Looking ahead attention now turns to US JOLTS jobs opening data which is expected to fall from 8.827 million to 8.8 million in August. A rise in job openings would signal a tight labour market and higher wage growth, supporting a hawkish Federal Reserve interest rate path.

FOMC member Raphael Bostic is on the calendar to speak today. Any hawkish comments could also fuel higher for longer butts pulling equities lower and supporting the US dollar.

Corporate news

Boeing will be in focus after announcing plans to ramp up production of its popular 737 jets to a record of 57 per month by July 2025. This is up from the projected 42 jets per month by December 2023.

Eli Lilly and Point Biopharma are in focus with the latter jumping 85% after Eli Lilly announced that it would buy the cancer therapy maker for $12.50 in cash, a deal worth $1.4 billion.

Airbnb shares slipped 3% premarket after KeyBlanc Capital Management downgraded the stock saying that the tailwind from the post-pandemic boom in travel demand is easing.

S&P500 forecast – technical analysis.

S&P500 is consolidating between the 4237 low and 4340, last week’s high. The 20 sma has crossed below the 100 sma and the RSI supports further losses while it remains out of oversold territory. Sellers will look to break below 4237, the monthly low, with a break below here exposing the 200 sma at 4215 and then 4200 round number. Meanwhile, any recovery will need to rise above 4315 the weekly high and 4340 to push higher towards 4387 the 20 sma.

FX markets –USD rises, GBP falls

The USD is climbing to a fresh 10-month high as surging U.S. Treasury yields keep the dollar heading higher. The dollar is finding support from upbeat data after the ISM manufacturing PMI showed signs of improvement and hawkish comments from the Federal Reserve, which support keeping interest rates higher for long. This contrasts sharply with the BOJ and as a result, USD/JPY is heading dangerously close to 150.00, a level where the Japanese authorities are expected to intervene.

EUR/USD is falling to a 2023 low amid recession fears and on bets that the ECB has hiked rates for the last time in this cycle. ECB chief economist Philip Lane warned that progress towards 2% inflation could be slower and said that more need work needs to be done to get to the inflation target. However, the concern for the market is that should the ECB keep rates higher for longer, a recession in the region is increasingly more likely.

GBP/USD Is falling in the risk of mood in the market and as UK shop price inflation falls to a one-year low. The British Retail Consortium and Nielsen's shop price index eased to an annual rate of 6.2%, a fall of 0.7% from August. Food inflation also eased to 9.9% from 11.5%. The data supports the view that the Bank of England may have reached the end of its hiking cycle.

EUR/USD -0.1% at 1.0480

GBP/USD -0.1% at 1.2070

Oil falls for a fourth day

Oil prices are falling for a fourth straight session, dropping to a three-week low on a stronger U.S. dollar and rising concerns over the global macroeconomic outlook.

Brent crude has fallen below $90 a barrel, and WTI is heading towards $85 a barrel amid rising U.S. treasury yields, a stronger U.S. dollar as the market prices in the prospect of the Federal Reserve keeping interest rates higher for longer. A stronger dollar makes oil more expensive for buyers with foreign currencies.

Concerns are also rising over the potential impact on the economy of higher interest rates for longer. A slowing U.S. economy could potentially hurt the oil demand outlook.

Meanwhile, supply-side news that Turkey will restart operations for the pipeline from Iraq, which has been suspended for about six months also weighed on prices. OPEC+ will be meeting tomorrow and is expected to keep its output unchanged, keeping supplies tight.

WTI crude trades -0.45% at $87.67

Brent trades -0.44% at $89.89

Looking ahead

15:00 JOLTS job openings