US stock index futures showed strong gains on Wednesday even as investors were spooked by strong commodity price increases and high inflation. Dow Jones Industrial Average futures gained 510 points or about 1.6%. Futures on the S&P 500 jumped by 1.7% and futures on the Nasdaq 100 increased by 2.1%.
Most likely, the slight decline in commodity prices from their yearly highs, which scared the market a lot earlier this week, allowed investors to look at the bigger picture more clearly. However, it is hard to tell what traders will pick up next as the risks are everywhere: the low yields on Treasuries are clearly not going to save money from the 8.0% inflation rate that will likely be announced tomorrow. Energy and agricultural products rose amid Russia's military operation in Ukraine. Some metals also showed significant growth.
Recently, President Joe Biden announced a ban on imports of Russian minerals, including oil, in response to the country's military operation in Ukraine. Immediately after that, the price of oil reached a 13-year high of $130. West Texas Intermediate, the US benchmark crude, declined by 2.2% to $120.92, while Brent crude, the international benchmark, dropped by 1.7% to $125.78. Wheat futures also fell sharply by 6.3% to $1,206 a bushel, but palladium and gold continued to rise. Palladium rose by 3.8% to $3,082.
As for Treasury yields, they rose but it is temporary, as investors are focused on tomorrow's inflation data and expect more action from the Fed. 10-year bonds rose by about 3.7 basis points to 1.91%. All major indices closed lower yesterday. The Dow Jones ended the day with a decline by 184 points or 0.5%. The S&P 500 lost 0.7% and the Nasdaq Composite closed almost unchanged, declining by 0.2%.
Today, market volatility will be quite subdued, whereas yesterday, the excessive activity was caused by investors' uncertainty about what to expect from future energy prices. This has exacerbated fears of a slowdown in global growth as inflation rises. Many are worried that the Fed will not be able to make a soft economic landing, but judging by the growth rate so far, the central bank should be able to avoid a recession. The strength of the US labor market, consumer demand, and credit should keep the economy out of recession in the short term. However, it is difficult to say how the global economy will be hit due to sanctions on Russia.
As for the S&P 500 technical picture
The pressure on the index persists, and there is a lot of bad news amid almost a lack of good ones. Bulls failed to fix the price above $4,292 yesterday and they will try to do so today. If they fail today, the pressure on the index is likely to increase, which may cause a decline to $4,233. A breakthrough of this level is likely to increase pressure on the index and return bearish sentiment to the market. The asset may test new lows at $4,175 and $4,113. If the price reaches and fixes above $4,292, it gives hope for the market recovery, but what happens in the regular session today is a big question. In the case of growth, we may expect a new sell-off at $4,341 and $4,383. Much will depend on the development of the conflict in Ukraine and possible negotiations between the presidents of the two countries.
