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Stocks Near Highs

Despite the uptick in USD this week, US stocks are holding up surprisingly well. The S&P is sitting just below highs following a fresh rally above the 5,268.67 level this week. A hawkish shift from the Fed at the June FOMC has not dented the rally and while the market has paused for now, it remains very much in a bullish phase. Indeed, the price action suggests some confidence that the Fed will ultimately ease in September, despite the bank slashing rate-cut projections to 1 from 3 prior in line with upwardly revised inflation forecasts.
 

Inflation Risks

Looking ahead this week, the big focus will be on core PCE tomorrow. The bottom line is that if we see any fresh upside in the data, this is likely to dilute September easing chances, push USD higher and weigh on stocks and the broader risk complex. However, if we see a downside surprise tomorrow, this will boost September easing expectations, pull USD lower and send stocks and risk assets higher.
 

US Data on Watch

Ahead of tomorrow’s headline data, we also have final US GDP today, unemployment claims and the latest set of retail sales figures. Given their importance for calculating GDP, retail sales can be very market moving. Given the focus on Fed easing expectations, a weaker number today should be bullish for stocks, feeding into September easing expectations.
 

Technical Views

S&P 500

(Click on image to enlarge)

The rally in the S&P has seen the index breaking out above the 5,268.67 level to trade up to fresh highs. The rally has stalled for now into 5.502.19 and with momentum studies weakening, a correction looks possible. Still, while price remains within the bull channel, the focus is on a continuation higher. 

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