Equities report: US PCE rates in sight

Since the start of the week, US stock markets seem to have moved higher with the S&P500, NASDAQ 100 moving higher as well as the Dow Jones 30 at the time of this report. In this report, we are to discuss the upcoming US PCE rates, Nvidia’s recent investment and the newly announced orders for Boeing aircraft. The report is to be concluded with a technical analysis of S&P’s 500 daily chart.

US PCE rates due out Friday

The US PCE rates for August are set to be released on Friday and are expected to showcase an acceleration of inflationary pressures at least on a headline level. In particular the headline PCE rate for August is expected to come in at 2.7% which would be higher than the prior rate of 2.6% and could validate Fed Chair Powell’s concerns about cutting rates too early. Specifically, the Fed Chair noted that it is a “challenging situations” and with “Two-sided risks mean that there is no risk-free path” showcasing the concern about inflation resurfacing should the Fed continue cutting rates too early, which could lead to a policy reversal down the line. Regardless, traders’ attention may have now turned to the PCE rates which are the Fed’s favourite tool for measuring inflationary pressures in the US economy and hence should the aforementioned scenario occur, it could weigh on the US Equities markets as the relatively tight financial conditions surrounding the US economy may remain in place for a greater period of time. However, should the PCE rates showcase easing inflationary pressures, it may increase pressure on the Fed to cut rates in the near future it order to aid the ailing labour market which has recently raised some concern amongst policymakers. Such a scenario may have the opposite effect and could in turn aid US stockmarkets. In our view, for a significant shift in Fed Chair Powell’s tone to emerge a clear indication of easing or an acceleration of inflationary pressures may need to be seen rather than small incremental increases or reductions.

NVIDIA’s big bet on OpenAI

Nvidia announced that it would be investing roughly $100bn into OpenAI in order to fund new computing power. Nvidia’s (#NVDA) investment in OpenAI further enhances Nvidia’s hold on the AI boom and further fortifies their position as an industry leader. Per Bloomberg “OpenAI plans to lease rather than buy the AI processors from Nvidia”, which could benefit OpenAI as well. Regardless the investment by Nvidia which essentially further consolidates its position, may have aided the company’s stock price and could continue to do so in the future. However, we must note that if these investments on AI infrastructure fail to produce the desired results and the AI bubble question resurfaces, Nvidia’s investment could be questioned and may instead weigh on the company's stock price. In conclusion, despite some concern over large investments in AI, Nvidia’s decision to further consolidate their tech leader role in the industry may aid the company’s stock price.

Boeing benefits from airline order

According to a report published today, Uzbekistan Airways has ordered 14 Boeing 787-9 Dreamliners, a day after Turkey announced that it was planning to buy hundreds of Boeing aircraft, according to Reuters. The two announcements may have aided Boeing's stock price as a large number of orders for their planes may benefit the aircraft manufacturer, as it may result in an increase in revenue. However, we must remember that Boeing has been plagued by a variety of issues since last year and thus any delays or concerns over the quality of the aircraft being produced could weigh on the company's stock price.

Technical analysis

US500 daily chart

• Support: 6635 (S1), 6467 (S2), 6295 (S3).

• Resistance: 6805 (R1), 7020 (R2), 7255 (R3).

The bullish tendencies of the S&P 500 seem to have been confirmed over the past week, with the index forming a new all-time high figure above our 6635 (S1) resistance turned to support line. We opt for a bullish outlook for the index and supporting our case is the RSI indicator below our chart, which currently registers a figure near 70, implying a bullish market sentiment in addition to our MACD indicator. Moreover, continuing to aid our bullish outlook is the upward-moving trendline, which was incepted on the 23rd of May. For our bullish outlook to be maintained, we would require a break above our 6805 (R1) resistance line with the next possible target for the bulls being our hypothetical 7020 (R2) resistance level. On the other hand, for a sideways bias we would require the index to remain between our 6635 (S1) support level and our 6805 (R1) resistance line. Lastly, for a bearish outlook we would require a clear break below our 6635 (S1) support level with the next possible target for the bears being the 6467 (S2) support line.