Dow Jones Forecast: DJIA rises as Core PCE data reinforces rate cut expectations

US futures

Dow future 0.71% at 41349

S&P futures 0.355% at 5613

Nasdaq futures 0.45% at 19433

In Europe

FTSE -0.24% at 8329

Dax 0.57% at 18800

US core PCE remains at 2.6% YoY & personal spending rises 0.3%
The data reinforces Fed rate cut expectations
EUR/USD falls after EZ inflation cools to a 3-year low
Oil is set to rise across the week

Stocks rise as the Fed is set to cut & attention turns to jobs

U.S. stocks are pointing to a higher start as investors digest the latest US inflation data.

Core PCE, the Federal Reserve's preferred gauge for inflation, was cooler than expected while spending rose. In July, Core PCE remained unchanged at 2.6% YoY, below expectations of 2.7%, reinforcing Fed rate cut expectations. Meanwhile personal spending rose to 0.3%.

The data comes as the Federal Reserve has said that it's confident that inflation will ease back to the 2% level. This supports the view that the Federal Reserve will start cutting interest rates in September, although the market is still underestimating the size of the rate cut.

According to the CME fed watch tool, the market's pricing is in a 33% probability of a 50 basis point rate count.

With inflation on track, the Fed's attention is turning towards the labor market, and all eyes will now turn to August’s non-farm payroll report next week. This data will be key for confirming or refuting recession worries. A bad NFP could cause equities to drop sharply lower. However, a stronger NFP print would help the stock market by calming any recession worries.

Data this week, including an upward revision to US GDP and jobless claims, helped ease recession concerns. As optimism surrounding a soft landing increases, the equities rally should broaden.

Corporate news

Crowdstrike is rising after HSBC's broker upgrade. Analysts believe the bad news regarding the mid-July outage due to a software update is behind Crowdstrike.

Lululemon, the athleisure stock, is set to open almost 5% higher following an earnings beat. The company posted EPS of $3.15, well ahead of expectations of $2.93, on revenue of $2.37 billion, just slightly below the $2.41 billion forecast.

Alibaba is set to open higher after the e-commerce company concluded a three-year regulatory recertification process according to the Chinese market regulator. The firm had been fined in 2021 as part of an antitrust investigation.

Marvell Technology, a semiconductor company, advanced over 10% after its Q3 outlook surpassed Wall Street estimates. It now expects EPS of $.040 per share on revenue of $1.45 billion.

Dow Jones forecast – technical analysis.

The Dow Jones rose to a fresh all-time high of 41582 yesterday. The price hovers just below here but is still comfortably above the 41000 support level. Buyers, supported by the RSI above 50, will look to rise above 41582 to fresh all-time highs.

FX markets – USD rises, EUR/USD falls

The USD is rising after inflation data cooled, but personal spending was stronger than expected, calming recession fears. The USD is set to rise across the week after 5 weeks of losses.

EUR/USD is falling after eurozone inflation cooled to a three-year low of 2.2% in August as it closes in on the ECB's target 2% level. The decline in inflation fueled expectations that the ECB could cut interest rates for a second time in the September meeting.

USD/JPY is rising for a third straight day despite Tokyo core inflation rising by more than expected. Core inflation rose to 2.4% YoY in August, above the 2.2%t forecast and backing market expectations for more interest hikes ahead.

Oil rises across the week on supply concerns.

Oil prices are holding steady but are set for a weekly gain due to concerns that Libyan output disruptions and Iraqi plans to curb production could keep the market under supply.

Over half of Libya's oil production was offline yesterday, and exports were halted at several ports amid a standoff between rival political factions. Meanwhile, Iraq's supplies also fell after the country's output surpassed its OPEC quota.

Meanwhile, on the demand side, news that the US economy grew faster than initially expected, which helped ease recession fears, lifted oil prices higher on Thursday. While the demand outlook for the US has improved, there are still concerns regarding the outlook in China.

Chinese PMI data is due early next week and could provide further clues about the health of the economy in China, the world's largest importer of oil.

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