Dow Jones Forecast: Stocks rise as rate cut optimism persists

US futures

Dow futures +0.19% at 37398

S&P futures +0.23% at 4742

Nasdaq futures +0.18% at 16750

In Europe

FTSE +0.01% at 7620

Dax +0.48% at 16725

• Fed speakers push back on rate cut bets
• Gains could be capped owing to Red Sea developments
• Google agrees to pay $700M
• Oil holds yesterday’s gains 

Stocks rise as markets shrug off Fed speakers

US stocks are pointing to modest gains as investors remain optimistic that the Federal Reserve will start cutting interest rates in 2024 despite some Fed officials playing down rate-cut bets.

Several Federal Reserve officials in recent days have been pushing back against the market expectations of interest rates early next year. On Friday, Vice Chair John Williams said that the central bank isn't really talking about cutting rates now. His thoughts were mirrored by the Fed policymaker Master, who said that the markets were a bit ahead of the central bank on rate cuts.

Still, those attempts to peddle back don't appear to dampen the positive mood in the market, with all three major indices set to open on the front foot.

Concerns over events in the Red Sea could limit the upside If the situation deteriorates much further. Shipping giants diverging ships around Africa to avoid the Red Sea security threat could mean higher shipping costs, which, as we know from COVID-19 times, can quickly mean higher prices for goods and result in rising inflation.

Corporate news

Apple is unchanged by the news that it will halt sales of its Watch Series 9 and Ultra 2 after the International Trade Commission's ruling upholding a decision that Apple infringed on medical technology patents.

Alphabet will be in focus as Google agrees to pay $700 million to settle a lawsuit brought by U.S. states and consumers over alleged anti-competitive practices at the Play Store.

Tesla will also be in focus as it plans to increase pay for some hourly employees at the Nevada factory. This comes as Tesla faces escalating labor disputes in Sweden, which could spread to Denmark, Norway, and Finland.

 

Dow Jones forecast – technical analysis

The Dow Jones continues to consolidate below all-time highs. There are few signs of a pullback forming despite seriously overbought conditions. Immediate support can be seen around 36600, the pre-Fed meeting record high, and 36000 round number.

FX markets – USD falls, GBP/USD rises

The USD is edging lower despite Federal Reserve officials pushing back on right-cut bets. The market appears to be ignoring the last commentary. Instead, market players are increasingly bearish about the direction of the USD in 2024.

As expected, BoJ left interest rates in negative territory and said it would continue with its yield curve control measures to support the economy. The central bank gave no clues on its plans for monetary policy tightening next year.

EUR/USD is rising despite eurozone inflation cooling by more than expected in November. CPI fell -0.6% MoM, a steeper decline than the -0.5% seen in the preliminary reading.  CPI eased to 2.4% year on year, in line with the initial reading, which is within touching distance of the ECB's 2% target. Falling inflation raises questions over the ECB's hawkish stance last week.

GBP/USD is rising after losses in the previous session and despite a lack of fresh catalysts. Attention will be on UK CPI data tomorrow, which is expected to cool slightly to 4.4%, although core inflation could remain sticky.

USD/JPY +1.1% at 144.35

EUR/USD +0.3% at 1.0962

GBP/USD +0.76% at 1.2743

 

Oil holds yesterday’s gains.

Oil prices are holding steady on Tuesday after solid gains in the previous session as investors continue to weigh up the possible impact on oil supply after attacks by the Houthi militants on ships in the Red Sea.

While oil major BP has temporarily halted the transition through the Red Sea, oil tanker firms have also said that they will look to avoid the route. However, the disruption is unlikely to greatly affect crude oil supply and is more representative of a rising geopolitical risk premium.

Looking ahead, attention will be on the API US crude inventory data, which is expected to decline by 2.2 million barrels.

WTI crude trades +0.05% at $73.70

Brent trades +0.05% at $78.80