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Stocks are set to open lower after the Fed paused rate hikes in June but pointed to 2 more hikes this year.

US futures

Dow futures -0.32% at 33932

S&P futures -0.28% at 4358

Nasdaq futures -0.54% at 14923

In Europe

FTSE -0.06% at 7607

Dax -0.76% at 16196

• The Fed left rates unchanged but signaled to 2 more hikes in 2023
• Retail sales rise +0.3% MoM, jobless claims increase +262k
• ECB hikes rates & signals more are coming
• Oil rises, recouping yesterday’s losses
   

Two more hikes ahead

US stocks head lower as investors continue digesting the federal reserve's June interest rate announcement.

The Fed, as expected, left interest rates unchanged at 5% -5.25% on Wednesday to assess the impact of the steepest hiking cycle for decades on the economy. However, policymakers also indicated that they could raise interest rates twice more before the end of the year, as the fight against inflation is set to continue.

The Fed's dot plot points to peak interest rates of 5.6%, up from 5.1% at the beginning of May. The more hawkish stance from the Fed comes after they upwardly revised growth forecasts to 1% and upwardly revised core inflation forecasts to 3.9%. Meanwhile, the US jobs market remains resilient.

The market is now pricing in a 72% probability of a 25 basis point rate hike in July, up from around 60% prior to the Fed meeting, and no longer expects a rate cut this year. However, the market doesn’t expect the Fed to hike by as much as policymakers expect either.

Stocks are selling off on the back of a more hawkish Fed outlook, and non-yielding Gold has dropped to a 3-month low.

Today's data was a mixed bag. On the one hand, retail sales unexpectedly increased by 0.3%, beating forecasts of a nought .1% decline in May. The data suggests consumers are still spending thanks to the solid U.S. jobs market.

Meanwhile, jobless claims rose more than expected to 262K ahead of the 249K analysts had penciled in.
 

Corporate news

Tesla falls pre-market, ending its 13 straight days of gains, a record run that saw the stocks rise 41%.

JD.Com rose 2.3%, and other Chinese companies will be under the spotlight after the PBoC cut the borrowing costs for its medium-term policy loans for the first time in 10 months.

XPeng drives higher after the EV maker won approval to roll out its self-driving technology in Beijing, putting it ahead of its rivals.
 

S&P500 outlook – technical analysis

After peaking at 4391 yesterday, the S&P500 has rebounded lower from the rising trend line resistance dating back to early March and is testing support on its 2-week rising trendline at 4350. The move lower is bringing the RSI back down from overbought territory. A break below the 4350 support brings 4325, the August high, into play, with further losses opening the door to 4260, last week’s low. On the upside, bulls will look for a rise above the 4391 yesterday’s high to signal further gains towards 4400.

(Click on image to enlarge)

FX markets – USD rising, GBP falls

The USD is rising after the Federal Reserve left interest rates unchanged but indicated that it would raise rates twice more this year to a peak of 5.6%, higher than the previously expected 5.1%

EUR/USD is rising after the ECB raised interest rates by 25 bps to 4%, its highest level in 22 years, and signals that there will be more rate hikes to come. The ECB press conference is due shortly/

GBP/USD is falling after two days of gains. The price continues to hover around its 2023 high after solid data this week fuels bets that the BoE will raise interest rates again next week and that it won’t be the last rate increase.

EUR/USD +0.09% at 1.0816

GBP/USD -0.07% at 1.2657
 

Oil rises, but gains could be limited

Oil prices are rising, recouping some of yesterday’s losses, boosted by strong China refinery data, but the weak economic backdrop limits the upside.

Last month, China’s oil refinery throughput rose 15.4% annually, hitting its second-highest total on record.

However, a weak economic outlook could weigh on gains after China’s retail sales and factory output data missed forecasts.

Meanwhile, the prospect of higher interest rates in the US and Europe, slowing economic growth and hurting the oil demand outlook, could also cap gains in oil.

WTI crude trades +0.94% at $69.00

Brent trades at +0.98% at $73.88

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