S&P500 Forecast: Stocks muted ahead of the Fed rate decision

US futures

Dow futures -0.1% at 33016

S&P futures +0.03% at 4193

Nasdaq futures -0.03% at 14410

In Europe

FTSE +0.57% at 7350

Dax +0.50% at 14868

• Fed is expected to leave rates unchanged
• Fed to leave the door open for another hike
• ADP payrolls rose 113k in October vs 150k expected
• Middle East worries in focus ahead of EIA data

Fed is expected to leave rates unchanged

U.S. stocks are set for a quiet open as investors wait for the Federal Reserve monetary policy decision and digest several data points and corporate earnings.

The market has fully priced in the Federal Reserve keeping interest rates unchanged at a 22-year high of 5.25 to 5.5%. Instead, the focus will be very much on the statement and Federal Reserve chair Jerome Powell's press conference for clues over how long the central bank could keep interest rates elevated.

While the US economy has continued to show resilience with stronger-than-expected retail sales GDP growth and rising inflation, high treasury yields are currently doing some of the hard work for the Fed.

The Federal Reserve is likely to reiterate its hawkish stance, standing ready to act again should yields fall significantly lower. However, in terms of interest rate meetings, this is probably set to be one of the least exciting meetings that we've seen for years as the Fed shifts into wait-and-see mode.

The meeting comes after data showed that ADP private payrolls rose by less than expected in October to 113,000, up from 89,000 but below estimates of 150,000. The data could suggest that demand for US workers has started to cool after an aggressive rate hiking cycle from the Fed, but job growth still sufficiently high to support consumption.

Attention will now turn to US ISM manufacturing figures, which are expected to show that activity in the sector contracted modestly 49 in line with September's reading.

As well as the Fed and economic data earnings are also under the spotlight.

Corporate news

AMD falls 2% pre-market after weaker-than-expected current quarter guidance overshadowed Q3 results that beat forecasts.

Estee Lauder tumbles 13% after lowering its full year outlook owing to headwinds in Asia.

Match Group is set to fall 9% on the open after Q4 forecasts came in below estimates as persistent inflation and unrest in some markets weigh on growth.

S&P500 forecast – technical analysis.

After rebounding from 4100 the recovery has run into resistance at 4200. Buyers need a rise above here to extend gains towards the 200 sma at 4250, which capped gains last week. A rise above here exposes the 50 sma at 4350. However, sellers could be encouraged by the RSI below 50 and will look for a reversal towards 4100 to create a lower low.

FX markets –USD rises, EUR falls

The USD is rising for a second consecutive session ahead of the Fed’s interest rate decision and as the benchmark 10-year treasury yield stays near the 4.9% level. The USD has shrugged off slightly weaker-than-expected ADP payroll data.

EUR/USD is falling for a second day as investors continue to mull over the weaker-than-expected eurozone GDP and cooler-than-forecast inflation data. The latest data highlights the divergence between the eurozone and US economies and supports the view that the ECB may be able to start cutting rates sooner.

GBP/USD is falling after UK manufacturing activity contracted at a faster pace than initially thought in October. The manufacturing PMI was downwardly revised to 44.8 from 45.2. This was up marginally from September’s 44.2. However, the data shows that the manufacturing sector is acting as a drag on the UK economy as it enters Q4. Attention now turns to the BoE rate decision tomorrow, where the central bank is likely to keep rates unchanged.

EUR/USD -0.41% at 1.0536

GBP/USD -0.27% at 1.2118

Middle East worries in focus ahead of EIA data

Oil prices are rebounding after falling over 5% in the past two sessions. Easing supply concerns sent oil prices lower at the start of the week. However, bears have been unable to extend the selloff today as the Middle East conflict continues and the geopolitical premium on oil prices remains.

With no signs of a ceasefire in sight and Iran’s Supreme leader calling for Muslim states to cease oil and food exports to Israel, traders are not going to feel comfortable shorting oil heading towards the weekend.

API data yesterday showed that US inventories rose by 1.3 million barrels last week. EIA data is due shortly.

WTI crude trades +2.25% at $82.51

Brent trades +2.5% at $86.70

Looking ahead

14:00 US ISM manufacturing PMI

14:30 EIA crude oil inventories

18:00 Fed rate decision