S&P500 Forecast :Caution ahead of the Fed & after mixed tech earnings

US futures

Dow futures -0.17% at 35526

S&P futures -0.13% at 4561

Nasdaq futures -0.25% at 15491

In Europe

FTSE -0.6% at 7649

Dax -0.9% at 16058

Fed to hike rates by 25 bps, but what next?
Mixed quarterly earnings from Alphabet & Microsoft
Meta to report after the close
Oil eases after API stockpiles rise

Caution prevails ahead of the Fed

US stocks are set to open lower amid a cautious market mood as investors digest tech earnings and look ahead to the interest rate decision from the Federal Reserve later today.

That is widely expected to raise interest rates by 25 basis points to 5.25% to 5% at the July meeting. This would mark an 11th rate hike in 12 meetings I will take the interest rate to its highest level in 22 years.

The meeting comes after lower-than-expected inflation for June boosted optimism that the Fed could be reaching the end of its rate hiking cycle. However, upbeat macroeconomic data over the past couple of weeks means that the Fed may be wary of concluding monetary policy tightening.

According to the CME Group fed watch tool, markets are fully pricing in today's rate hike and our pricing in a 38% probability of another rate hike before the end of the year.

Fed Chair Powell is likely to leave the door open for further hikes. However, should he acknowledge softening of inflation and doesn’t reiterated the Fed’s willingness to hike further, then stocks could rally.

In addition to the Fed, earnings season continues to ramp up, with Mera set to report today, in addition to many other firms.

Corporate news

Alphabet is rising pre-market by over 6% after impressing with its quarterly results. The Google parent beat expectations amid steady demand for its cloud and a rebound in advertising. Alphabet posted EPS of $1.44 on revenue oof $74.6 billion.

Microsoft is falling over 3% poor premarket after the software giant reported a 27% slowdown in growth in its cloud computing division, Azure, as clients rained in spending owing to the economic uncertainty.

Snap tumbles 18% after the photo messaging app owner posted weaker than expected Q3 guidance and struggled to compete with larger tech rivals for advertising revenue.

Coca-Cola is set to rise over 1.5% on the open after the soft drinks giant lifted its full year revenue forecast on expectations of higher pricing and resilient demand.

S&P 500 forecast – technical analysis

The S&P500 continues to trade towards the upper band of the multi-month rising channel, guided higher by the 20 sma. The RSI has fallen out of overbought territory for now. Immediate resistance can be seen at 4580 the 2023 high, ahead of 4600 round number and 4610 the upper band of the rising channel. On the downside, support is at 4530 the weekly low, with a break below here opening the door to 4500 round number and 4450 the June high.

FX markets – USD falls, EUR rises

The USD is falling, extending losses from yesterday ahead of the FOMC rate decision. Despite the risk-off mood in the market, the USD is failing to attract safe-haven flows. A less hawkish-sounding Fed could set the USD on the next leg lower.

EURUSD is rising, capitalising on the weaker U.S. dollar and despite a lack of fresh drivers in the European session. The ECB will announce its rate decision tomorrow and is expected to hike by 25 basis points.

GBPUSD is drifting higher, boosted by an upward revision from the IMF which no longer sees the UK economy contracting 0.3% this year, instead growing 0.4%. It is no longer expected to be the worst-performing major economy, with Germany now set to take that position.

EUR/USD +0.04% at 1.1095

GBP/USD +0.08% at 1.29

Oil falls after stockpiles rise

Oil prices are heading lower after 4-days of gains ahead of an expected interest rate hike by the Federal Reserve later today.

Oil prices have been rallying across recent weeks, boosted by signs of tighter supply as OPEC plus cuts output.

Meanwhile, pledges of support by Chinese authorities to shore up China, the world’s largest oil importer, have also underpinned the oil price. However, there is a risk here that, despite promises, Beijing fails to deliver the support necessary over the coming months.

US crude oil stockpiles rose by 1.3 million barrels, according to API data, well above the 2.3 million barrel draw that analysts had forecast. EIA stockpile data is due shortly.

Looking ahead the Fed rate decision Could provide some volatility in oil prices as the market is expecting this to be the final rate hike in this hiking cycle. However, fed officials are likely to be wary of raising false hopes and cooling the conclusion of its aggressive tightening programme. A Hawker standing Fed could drag on the price of oil.

WTI crude trades -1.1% at $78.65

Brent trades -1.05% at $82.49

Looking ahead

15:00 US New home sales

15:30 EIA crude oil stock piles

19:00 Fed rate decision

19:30 Fed press conference

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