S&P 500 Forecast: SPX recovers ahead of FOMC minutes & CPI later in the week

US futures

Dow future 0.15% at 42013

S&P futures 0.38% at 5720

Nasdaq futures 0.45% at 19985

In Europe

FTSE -1% at 8219

Dax -0.05% at 19084

• Stocks rise after a steep selloff yesterday
• Market prices in a 13% chance of the Fed not cutting rates
• PepsiCo reports earnings
• Oil falls after China's disappointment

Stocks rise after steep losses ahead of more cues later this week

U.S. stocks are edging higher on Tuesday, stabilizing after steep losses in the previous session as investors doubted the Fed's ability to cut interest rates aggressively.

Expectations of smaller rate cuts saw the three main indices fall around 1% in the previous session as the S&P500 and the Dow Jones retreated from record highs.

Today, the mood is steadying, helped to a degree by comments from New York Fed President John Williams, who sees the US economy heading for a soft landing and helped by falling oil prices.

There is little in the way of economic data today, although the market will be looking to Fed officials with Raphael Bostick and Susan Collins, who are due to speak later.

Their comments come ahead of the release of FOMC minutes tomorrow and US inflation data on Thursday, which could provide more clues over the Fed's next steps.

After the bumper non-farm payrolls and owing to the resilient U.S. economy, traders are pricing in an 80% probability that the Fed will cut rates by 25 basis points in November and a 19% chance that the Fed will not cut rates at all. This is quite the turn around from the 60% probability of a 50 basis point rate cut expected around a week ago.

Corporate news

PepsiCo is set to open lower after reporting Q3 earnings that beat expectations. However, revenue fell short of estimates amid subdued demand in North America and international business disruptions. PepsiCo posted EPS of $2.31, ahead of $2.29 expected; however, revenue was $23.32 billion, missing forecasts of $23.9 billion. The drinks and snacks giant also revised its 2024 organic revenue growth outlook lower.

Alphabet is rising despite its Google unit being ordered by a US judge to reconfigure its operating system to allow rivals to make their own app marketplaces & payment options.

S&P500 forecast – technical analysis.

The S&P 500  slips but continues to consolidate around all-time highs, below 5770 and above 5670. Buyers will look to rise above 5770 to extend gains to fresh all-time highs. Buyers will look for a break below 5675 t open the door to steeper losses towards 5550 and the 50 SMA.

FX markets – USD rises, EUR/USD rises

USD is falling after 8- days of gains but still hovers around a seven-week high supported by expectations that the Federal Reserve will cut interest rates at a slower pace than initially expected. US 10-year treasury yield remains above 4% at around a 2-month high.

EUR/USD is heading modestly higher but remains below the 1.10 level as investors digest stronger-than-expected German industrial production. Industrial output rose 2.9% in August after falling 2.4% in July. However, the data does little to calm concerns over the outlook for the eurozone's largest economy following a series of weaker data in recent weeks.

GBP/USD is rising due to the weaker U.S. dollar but hovers around a two-week low as the market reassesses the likelihood of Bank of England rate cuts. Following comments by Bank of England governor Andrew Bailey last week, the market sees the central bank adopting a more aggressive pace of rate cuts.

Oil falls after China skepticism seeps in

Oil prices are falling after a strong rally, following disappointment from China, and as the market waits for further developments in the Middle East.

Oil prices shot higher last week after Iranian rockets attacked Israel fuelling fears of a broader conflict in the Middle East, which could hit the supply. The market continues to wait to see Israel's next step. While the dust clearly hasn't settled on the Middle East, the market needs further catalysts to move higher.

Instead, attention turned to China, and the market was disappointed by the lack of additional stimulus or further details surrounding the stimulus announced a few weeks ago. Fueling some skepticism.