S&P 500 futures look ready to rebound after yesterday’s sell-off as investor mood is lifted by better-than-expected earnings from Oracle.
The company benefited from increased usage of its cloud services and beat analyst expectations, reporting revenue of $9.37 billion and GAAP earnings of $0.72 per share.
This performance provided support to leading tech stocks like Apple or Facebook which had a tough session yesterday but are gaining ground in today’s premarket trading.
Tech stocks’ trading dynamics are very important for S&P 500 due to their huge market capitalization so a rebound in the tech space will provide significant support to the market.
Brexit Drama Continues
Brexit is set to be a major source of uncertainty for the world markets in the upcoming weeks. UK has announced its plans to modify the existing Brexit Withdrawal Agreement and break the international law, while EU demanded that UK abandoned such plans.
Both sides are increasing their preparations for a no-deal Brexit which may send shock waves across the world markets.
The British pound continues to fall but it looks like all risks are not yet priced in the current GBP/USD exchange rate.
A continuation of the existing trend will provide additional support for the U.S. dollar, and the U.S. Dollar Index will have a chance to settle above the nearest resistance at 93.50. Stronger dollar may serve as an additional bearish catalyst for U.S. stocks.
Prices Rise Faster Than Expected
U.S. has just provided inflation data for August. Core Inflation Rate increased by 1.7% on a year-over-year basis compared to analyst consensus of 1.6%. On a month-over-month basis, Core Inflation Rate grew by 0.4% while the analyst consensus called for growth of just 0.2%.
Inflation Rate grew by 1.3% year-over-year while analysts expected growth of 1.2%. Month-over-month, Inflation Rate increased by 0.4% compared to analyst consensus of 0.3%.
Strong inflation will likely provide more support to the U.S. dollar and may put some pressure on stocks.
The U.S. Fed has recently adopted an average inflation target of 2% which will allow it to keep rates low even if inflation rises above 2%.
If inflation reaches the 2% level faster than expected, markets will start to price in the probability of a rate hike, which may serve as a significant bearish catalyst for stocks.
Vladimir is an independent trader and analyst with over 10 years of experience in the financial markets. He is a specialist in stocks, futures, Forex, indices, and commodities areas using long-term positional trading and swing trading.