After yesterday's speech by Fed Chairman Jerome Powell, US stock index futures unexpectedly rose and corrected quite well, but today they have already returned to their yearly lows and may hit a new one. Futures contracts tied to the Dow Jones Industrial Average declined by 1.9% or 575 points. Futures on the S&P 500 fell by 2.3% and futures on the Nasdaq 100 dropped by 2.8%. 10-year Treasury yields resumed their June gains, which were temporarily stalled after yesterday's Fed meeting, and reached 3.44%.
Yesterday, Powell stated the need for lower inflation and recalled the central bank's biggest interest rate hike since 1994, while indicating the distinct possibility of another large 0.75% bps increase in July. "Our objective really is to bring inflation down to 2% while the labor market remains strong," Powell told reporters. "I think that what's becoming more clear is that many factors that we don't control are going to play a very significant role in deciding whether that's possible or not." He also noted that a 75 basis point increase is unusually large, but hinted at another such rate change as early as the July meeting.
The major indices closed the session in the green zone yesterday. The Dow and S&P 500 broke a five-day losing streak. The tech Nasdaq Composite showed relative gains, climbing by 2.5%.
Nevertheless, market sentiment remains rather negative, because there is nothing to be happy about. Central banks around the world are adopting more and more aggressive policies, which will clearly hamper global economic growth and have a negative impact on the cost of living. More recently, central banks in Switzerland and Hungary have raised rates more than expected. The Bank of England is also expected to raise the rates today.
Gas and oil prices continue to rise. Thanks to sanctions, Russia continues to cut supplies, creating increased inflationary pressure on economies. This suggests that even in spite of a sharp increase in interest rates, the problem of inflation will not be solved overnight. All this only increases the risk of a recession for the US economy, not to mention less developed countries.
Today we will have weekly data on US jobless claims, with economists predicting an increase of 220,000. There will also be data on the housing market.
The technical picture of the S&P 500
The market plummeted to new yearly lows. Today, buyers of risky assets can only count on a return of the index to the resistance of $3,708. A breakthrough of $3,708 may push the price to the area of $3,730, where large sellers are likely to come back to the market again. At least, there will be those, who wish to fix profits on long positions. The next target is a level of $ 3,755, but it's hardly possible. In case of pessimism in the market and another talk about high inflation and the need to fight it amid speeches of representatives of the Federal Reserve System about more aggressive steps, the trading instrument may easily reach the nearest support of $3,677. A breakthrough of this level may lead to a new sell-off at $3,640 and $3,608.
