Chart of the day - US30 (11.10.2023)

Futures on the Dow Jones Industrial Average index (US30) are likely to record above-average volatility today for at least several reasons. First of all, today the market is alive with the publication of September PPI inflation (13:30 BST) from the US, which will precede tomorrow's CPI reading. Since usually the first 'fresh' inflation publication triggers a large speculative reaction (based on the reaction to it, the market may play up subsequent readings). The market does not expect a significant change from the previous reading, so any sharply larger deviation in inflation dynamics than forecast could lead to a sizable reaction on Wall Street. The market expects a 1.6% y/y reading (1.6% previously) and a decline in m/m dynamics to 0.3% from 0.7% previously - the core CPI is expected to rise annually to 2.3% vs. 2.2% previously and maintain a flat 0.2% m/m dynamics. A potential downward surprise in the core reading could further cement the market's belief that the Fed will lean toward keeping rates unchanged but it's worth remembering that tomorrow at 1:30 PM BST we have the CPI reading, which could potentially still reverse today's market reaction.

Moreover, the volatility of the DIJA index could also increase today as Wall Street will learn (7 PM BST) the FOMC minutes from the Federal Reserve's latest September meeting. Faced with relatively dovish comments from several Fed members in recent days (including Bostic), investors will pay attention to exactly how Fed members related to keeping rates unchanged in September, how many of them voted in favor of such a decision, and whether they saw the potential to stop the cycle at current interest rate levels. According to 19 of 26 Wall Street strategists, 10-year bond yields have already peaked in the current cycle - and yield forecasts for the end of this year have also fallen significantly, to 4.25% versus 4.56% previously (median of 55 economists surveyed by Bloomberg). That's quite a change, and as long as a soft landing is still in play - positive for the stock market.

Looking at the Dow Jones index, some of the stocks in the Dow index have recently fallen to record oversold levels (CocaCola, Nike, Disney, among others). If the market begins to reassure itself of a soft landing we could witness a unwinding of declines in the stocks of cyclical companies. On the chart of the US30 we see a bullish formation resembling the so-called 'saucer' with the main resistance level marked by the red horizontal line near 34,100 points. Breaking this resistance zone could open the way to gradually attack the level of 35,000 points. On the MACD we also see a bullish crossover of the averages signaling positive momentum. The primary level of short-term support may turn out to be the SMA50 (yellow line) - it has been an important resistance level since the declines accelerated after the recent future rollover.

Source: xStation5