S&P500 Outlook: Stocks extend gains driven by easing inflation

US futures

Dow futures +0.18% at 34413

S&P futures +0.2% at 4490

Nasdaq futures +0.72% at 15422

In Europe

FTSE +1.54% at 7290

Dax +1.2% at 15695

• US PPI cools to 0.1% YoY vs 0.4% forecast
• Delta Air & PepsiCo post upbeat earnings
• USD falls to a 2023 low
• Oil rises on hopes demand outlook optimism 

US PPI cools to 0.1%

US stocks are set to extend the rally on the open as easing inflation continues to drive risk-on trade.

US PPI followed CPI’s footsteps yesterday, cooling by more than expected. PPI rose just 0.1% YoY in June, down from a downwardly revised 0.9% in May. Expectations had been for a 0.4% rise.

The data comes after CPI fell to a 2-year low in the previous session. Together the data suggest that we are at a critical point where the Federal Reserve is winning its fight against inflation.

At the FOMC meeting on the 18^th and 19^th of July, there will likely be a growing number of Federal Reserve officials questioning whether more interest rates are needed after July. Any sense that the Fed is ending the hiking cycle could support stocks.

Attention now will be turning to earnings season, which kicks off officials tomorrow with US banks. Broadly speaking, the bar is low for earnings season, which could mean it acts as a positive catalyst for stocks.

According to FactSet, profits are expected to fall for a third straight quarter, dropping by 7.2%. This would mark the largest decline since Q2 2020 amid the pandemic. Guidance will be key, as always.

 

Corporate news

Delta Air Lines rises 4% after posting a record quarterly earnings and revenue thanks to a rebound in demand post-pandemic and raised its profit outlook. Other airlines are rising on the back of the good news.

PepsiCo stock rose 2.3% after the snacks and beverages giant raised its full-year forecasts after strong than expected quarterly earnings and revenue.

Disney rises after announcing that CEO Bob Iger’s contract had been extended until 2026, 2 years longer than initially expected.

S&P500 outlook – technical analysis

 

FX markets – USD falls, GBP rises

The USD is falling following US inflation data; the market is increasingly less convinced that the Fed will continue to hike rates after the July meeting.

EURUSD is rising towards 1.12 on the back of a weaker USD and from the June meeting, which underlined the central bank’s hawkishness. Christine Lagarde and other policymakers said that inflation must return to the target of 2% as a minimum. With inflation expected to be at 5.5% in June, work still needs to be done.

GBPUSD is rising after UK GDP data showed that the UK contracted less than feared in May. GDP shrank -0.1% MoM, better than the -0.3% contraction forecast. The data follows record wage growth in May of 7.3% fueling bets of more rate hikes from the Fed.

EUR/USD +0.7% at 1.1190

GBP/USD +0.94% at 1.31

 

Oil jumps on USD weakness, hopes that the Fed soon concludes its hiking cycle.

Oil prices are holding steady on Thursday as the bulls pause for breath after softer US inflation data boosted oil to a 2-month high. Hopes that the Federal Reserve hiking cycle could be ending and strong Chinese oil trade data kept WTI above $75.00.

U.S. data yesterday showed that consumer prices cooled by more than expected, and the markets now expect just one more rate hike from the Fed before it concludes its rate-hiking cycle, supporting the demand outlook.

China's June crude oil imports rose to 52.06 million metric tonnes, which equates to 12.67 million barrels per day, marking a 45% increase annually and the second-highest monthly figure on record. The data is helping to calm concerns over the slowing momentum of the Chinese economic recovery.

However, gains could be capped after a larger-than-expected build in US crude oil stockpiles of nearly 6 million barrels last week, well ahead of forecasts.

 

WTI crude trades +0.67% at $76.66

Brent trades at +0.59% at $80.00