Dow Jones Forecast: DJIA rises to fresh record highs on rate cut optimism

US futures

Dow future 0.24% at 41761

S&P futures 0.45% at 5658

Nasdaq futures 0.67% at 19552

In Europe

FTSE 0.66% at 8330

Dax 0.92% at 18801

US retail sales unexpectedly rose in August
Traders price in a 63% chance of a 50 basis point rate cut
Intel soars on Amazon chip deal
Oil rises on rate cut optimism; supply concerns

Stocks rise after stronger-than-expected retail sales, rate cut optimism

U.S. stocks are rising, extending gains from the previous session on rate cut optimism ahead of the Federal Reserve interest rate decision tomorrow and following stronger-than-expected retail sales data.

Retail sales rose by 0.1% MoM in August. This was down from 1% growth in July but ahead of the 0.2% decline that economists had expected. The data supports the view that the US consumer remains resilient mid-way through Q3, even as hiring and wage growth show signs of cooling.

The data comes ahead of tomorrow's closely watched US Federal Reserve interest rate decision, where the Fed is set to cut rates. The market is pricing in a 63% probability that the Fed will kick off its rate-cutting cycle with a 50 basis point reduction. Optimism over an outsized rate cut has helped stocks rally, with the S&P500 set to rise for a seventh straight day while the Dow Jones points to a fresh all-time high.

However, if the Fed does opt for an outsized hike, this could potentially speak to the markets and send a message that the Fed is behind the curve.

Looking at historical data from the past six Fed easing cycles, going back to 1989, the S&P 500, treasury, and gold have typically risen as the Fed starts lowering rates.

Corporate news

Intel is set to open over 6% higher after the US chipmaker group said it's contract manufacturing division had signed a deal with Amazon to make custom AI chips.

Microsoft is also gaining up over 1.5% after the software giant's board gave the all clear for a new share buyback programme worth over 60 billion and also raised its dividend by 10%

Walmart is climbing after Morgan Stanley highlighted that membership at the retail giant soared to a record high in August.

Dow Jones forecast – technical analysis.

The Dow Jones has risen above 41,582 the early September high, reaching a fresh record high. The next logical level after 42k could be 42,250 the upper band of the rising channel. On the downside, immediate support is seen at 41k and 40,500 to 50 SMA. It would take a move below 40k to create a lower low.

FX markets – USD rises, EUR/USD falls

The USD is rising, snapping a four-day losing run after stronger-than-expected retail sales data. Still, the USD remains near yearly lows on expectations that the Federal Reserve could cut interest rates by 50 bps.

EUR/USD is falling after disappointing German data. German ZEW economic sentiment tumbled to 3.9 in September, down from 19.2 in August. The deterioration in economic confidence raises concerns over the economy's health and the likelihood of a recession.

USD/JPY has recovered above 140 but continues to hover around its lowest level this year on divergent BoJ - Federal Reserve monetary policy expectations. Both the Fed and the BoJ will announce interest rate decisions this week. While the Fed is set to cut, the BoJ could prepare the market for another rate hike in the coming months.

Oil rises as supply concerns offset weak China data

Oil prices are rising, adding to yesterday’s gains on rate cut optimism and tighter supply as investors look ahead to inventory data.

The markets are pricing in a 67% probability that the Fed will cut rates by 50 basis points on Wednesday. A lower interest rate environment is expected to boost growth, improving the oil demand outlook.

Meanwhile, 16% of oil production and 26% of natural gas remain offline in the Gulf of Mexico, keeping supply concerns forefront.

These factors offset worries regarding the Chinese demand outlook after disappointing data from the world's largest oil importer over the weekend.

Attention will now turn to the API oil inventory data, which is expected to show that oil inventories fell by 200K barrels in the week ending September 13. A larger-than-expected draw could further lift oil prices.

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