S&P 500 stalled ahead of Fed meeting, Oil price hits 2-year high

Higher oil prices continue to be the headline in financial markets, hitting 2-year highs and briefly surpassing $92 per barrel. Nasdaq and the S&P 500 struggled to find direction ahead of the Federal Open Market Committee September meeting today and tomorrow. No one expects another rate hike. Treasury markets saw yields rising, with 10-year yields close to their highest levels in 16 years at 4.32%. The US dollar index paused after a recent run.

Bottom-line: risk-hold.

TODAY’S MAJOR NEWS

No Fed hike expected tomorrow

Wall Street is hoping we’re at the peak of the interest rate increases and that the Fed will start to pivot without losing its grip on inflation; forward rates are 99% certain that rates will remain unchanged upon the conclusion of the FOMC meeting tomorrow afternoon. However, there is a 31% chance of another rate hike at the next policy meeting in November. Actual government data from last week doesn’t support the equities market optimism – higher-than-expected prints came in for both the CPI and PPI data last week, suggesting inflation has yet to be completely “tamed”, and the Fed will likely continue to tread carefully as to not repeat past errors.

Oil rally continues

WTI crude oil values are rallying again, easily passing the $90 per barrel mark. US crude oil stocks rebounded in last week’s Department of Energy summary but it came after a long period of declines, with inventories near the bottom of recent year’s range at this point in the season. Saudi Arabia and Russia are sticking with voluntary supply cuts from earlier this month, but if prices continue to rally towards the magic $90 per barrel mark it will stimulate output, both domestically in US shale oil production and globally.

US homebuilders turn pessimistic

US homebuilders are turning more pessimistic according to today's National Association of Home Builders (NAHB) Housing Market Index. Despite the huge slowdown in sales, US home prices have held firm, with limited supply low as homeowners with low interest mortgages already locked in remain unwilling to sell. This is a big week for the US housing market, with August housing starts and building permits set to be released tomorrow, mortgage applications and refinance data to be released Wednesday, and existing home sales coming on Thursday.

• The Housing Market Index showing an unexpected decline back into contractionary territory with a reading of 45 for September after 50 last month
• This is the lowest reading seen since April and marks the second consecutive monthly decline, reversing trend after sentiment had gradually been improving since bottoming out at 31 back in December 2022
• The single-family home sales index fell 6 points month-on-month down to 51
• The outlook for home sales over the next six months dropped into contractionary territory at 49

Unions still far part in auto workers strike

Jeep maker Stellantis on Saturday said they’d offer a 21% pay increase to its union workers over the course of the contracts, including an immediate 10% pay raise, in line with proposals from Ford and General Motors to the United Auto Workers (UAW.) However, the UAW is seeking a 40% hourly pay raise and a reduced 32-hour work week, along with other demands. The major auto companies have all picked up talks with union officials today, but the market will be watching for progress in the coming week or so, or the threat of further strike activities could increase.

TODAY’S MAJOR MARKETS

Equity markets up modestly in lackluster trading

• Equity markets fell in lackluster trading, with the S&P 50 and Nasdaq up 0.3%, while the Russell 2000 fell 0.3%
• Foreign markets were weaker overnight, with the Dax end FTSE 100 off 1.1% and 0.8% respectively, while the Nikkei 225 was up 1.1%
• The VIX, Wall Street’s fear index, was largely unchanged at 14.0

Dollar pauses recent rally

• 2-year and 10-year bonds rose to 5.05% and 4.32% respectively
• The dollar index slipped 0.2% to 105.1
• Versus the dollar, the Euro bounced back 0.3% after recent weakness, while the Yen and Sterling were both up 0.1%

Oil breaches $92 mark

• Crude oil prices rose another 1.1% to $91.8 per barrel
• Spot gold and silver prices both rallied 0.3%, to at $1,951 per ounce and $23.5 per ounce
• Grain and oilseed prices continue to drift

Analysis by Matt Zeller, Senior Market Intelligence Analyst: Matt.Zeller@StoneX.com

Market outlook by Paul Walton, Financial Writer: Paul.Walton@StoneX.com