US stock index futures continue to rise. The rally has been going on for four days, but everything points to the gradual completion of the first wave of bullish momentum. It is obvious that traders took a little spirit after that and are now betting that inflation in the US is already close to its peak or has already reached it, even though the Fed's policy remains hawkish. Futures contracts for the S&P 500 and Nasdaq 100 rose 0.3% and 0.4%. The industrial Dow Jones showed more modest dynamics. The dollar index continued to decline, and the yield of treasury securities slightly decreased and increased against the rising demand.
Most likely, the further direction will depend on the US inflation data for August this year, which will be published on Tuesday. The overall consumer price index is expected to decline to 8% per year, while the base indicator excluding food and energy prices, on the contrary, will accelerate. Despite this, traders expect another giant Fed hike next week after two increases of 75 basis points.
A more lenient attitude to interest rates on the part of the Fed would allow the stock market to recover more actively. Still, while there is a risk that high inflation will take root and will be considered the norm, officials will not take such actions. It will be interesting to see how traders now react to the inflation data since it is obvious that those who focus on dovish rhetoric may not have the best times.
More recently, Fed Chairman Christopher Waller said he supports another significant interest rate hike at a meeting when the central bank meets later this month. The president of the Federal Reserve Bank of St. Louis, James Bullard, also recently said in an interview that he is inclined to a third consecutive rate hike of 0.75%. At the same time, his colleague from Kansas City, Esther George, noted that officials have "clear" arguments in favor of maintaining a hawkish monetary policy.
If tomorrow's CPI data shows a noticeable decrease in price pressure, stocks may rise significantly since the Fed's forecasts were much more severe than reality. However, despite the good numbers, there remains a risk that the Fed will stick to its hawkish positions since inflation may remain well above its comfortable levels for a long period — this means that it is still premature to bet on the beginning of a bull market.
Plans to reduce energy bills in Europe also remain positive among investors, who expect that the authorities will allow households to survive difficult times more steadfastly. The European Union is expected to propose a plan to reduce energy consumption and a levy to channel the profits of energy companies to consumers in need as they make unprecedented profits amid rising energy prices.
As for the technical picture of the S&P500, taking advantage of the positive, the index continues to grow for the fourth day. For further upward correction, it is necessary to overcome the level of $4,091. A breakdown of this range will help reverse the downward trend observed in the middle of summer this year and will target the index at the more important resistance of $4,116. A further target will be the area of $4,150. In the case of a downward movement, a breakdown of $4,064 will lead to $4,038 and $4,003, pushing the trading instrument back to a minimum of $3,968. From there, a direct road to the $3,942 area, where the pressure on the index may ease a little.