S&P500 Forecast: SPX grinds higher with trade developments in focus

US futures

Dow futures 0.12% at 42184

S&P futures 0.18% at 5893

Nasdaq futures 0.24% at 21240

In Europe

FTSE -0.12% at 8597

DAX -0.25% at 23568

Stocks pause for breath after turning positive for the year

Cooling inflation & de-escalating trade tensions support stocks

Nvidia extends gains from yesterday after Saudi Arabia trade deal

Oil falls after 4-days of gains

S&P 500 turns positive for the year

U.S. stocks point to a modestly higher  open as investors pause for breath following a strong start to the week fueled by optimism surrounding the US-China trade deal and cooler-than-expected inflation.

The S&P500 and the Nasdaq closed higher yesterday, while the Dow Jones bucked the trend with a lower close, dragged down by an 18% slump in UnitedHealth.

US indices have rebounded strongly as the worst-case scenario for trade tariffs has passed and amid a de-escalating trade war with China. S&P 500 is now trading positively for the year for the first time since February.

Whilst trade deal news has helped the recovery, trade tariffs are still higher than they were when Trump came into office. So far, data has held up well, with US inflation figures yesterday is showing that CPI cooled by more than expected to 2.3%. Whilst it could still take time for the impact of trade tariffs to show up in hard data, a de-escalation of trade tensions is certainly helpful for growth, making inflation less of an issue for the Fed.

The Fed is expected to cut rates by 25 basis points but may not do so until later in the year to give a clearer picture of the impact of tariffs on the economy.

There is no high-impacting US data today. Attention will be on  Federal Reserve Chair Jerome Powell, who is due to speak tomorrow

Corporate news

Nvidia is adding to yesterday's gains of 5%, trading an additional 2% higher following deals in Saudi Arabia with the US. Nvidia chips will be used to build out data centers in the kingdom.

American Eagle Outfitters slumped 13% after the clothing retailer withdrew its outlook for the year after weaker than expected Q1 earnings.

S&P 500 forecast – technical analysis.

The S&P 500 recovered from the 4800 low, rising aggressively above the 200 SMA to current levels at 5900 turning positive on the year. The bullish engulfing candle, combined with the  RSI above 50 and below 70, supports further upside. Buyers will look to extend gains towards 6000. Failure at 5900 could see the price fall back to test 5780, the 200 SMA.

FX markets – USD falls, EUR/USD rises

The USD is falling further, extending yesterday’s decline after cooler-than-expected CPI data cooled to its lowest level in four years. Trump once again criticized Powell for not cutting rates.

The EUR/USD is rising despite German inflation easing to 2.2%, a six-month low. ECB policymaker Villeroy de Galhau was optimistic that the ECB would cut rates again before the summer. However, the dovish ECB stance could limit the upside in EUR.

GBP/USD is rising for a second straight day, capitalising on a softer U.S. dollar and does not beat the market mood. BoE policymaker Catherine Mann feds but she voted to keep interest rates on hold last week after seeking a bigger 50 basis point cut in February because the labour market had been more resilient than she had expected. Yesterday's data showed that wage growth eased by less than expected to 5.6%, which is still high by historical standards.

Oil falls after 4 days of gains

Oil prices are slipping lower on Wednesday after four days of gains as investors eye a potential increase in US crude oil inventories.

The weekly EIA inventory report follows API numbers yesterday, which showed crude stockpiles were up by 4.3 million barrels in the week ending May 9, while gasoline ventures fell by 1.4 million barrels.

Meanwhile, the OPEC monthly report will also be released later today, detailing the supply and demand outlook.

Oil has had a solid rally over the past few days so some profit-taking is to be ex. However, gains from here may be limited giving the concerns surrounding demand.