Futures on US stock indices are trading in the red again after Friday's sell-off, triggered by risk aversion. Traders flocked from risk assets amid fears of acceleration in inflation and a global recession. The Dow Jones futures sank by 0.77%, the S&P 500 lost about 0.8%, and the high-tech NASDAQ declined by only 0.47%. The US government bond yields logged their worst decline in a decade. The US dollar index soared to another high.
Traders shifted their attention to the UK markets after a sharp drop in the pound sterling by more than 5.0%. The UK Treasury bond yields rose to their highest level in more than a decade, fueling speculation about intervention by the Bank of England. The market chaos, which occurred after the announcement of the government's budget plan on Friday, intensified. The authorities also voiced further tax cuts. Chancellor of the Exchequer Kwasi Kwarteng unveiled the biggest package of tax cuts in 50 years for workers' wages and companies. The government plans to bolster the UK's economic resilience. Kwarteng also reduced stamp duty on properties and lifted the cap on bank bonuses. Britain will spend about €60 billion on subsidizing gas and electricity bills for the next six months for households and businesses. Investors are now worried that the Fed may start to raise rates more aggressively to combat soaring inflation. European stock indices are also drifting lower after Friday's drop, with mining and energy stocks logging the biggest losses.
Apparently, markets are now gripped by pessimism due to mounting uncertainty and geopolitical tensions. Many analysts have predicted such a scenario. So, it is hardly surprising for traders.
They are also flocking back from stocks amid risk aversion caused by geopolitical uncertainty. Demand for safe-haven assets, including the US dollar, is high now. Escalating tensions around Taiwan and unrest in Iran have also adversely affected market sentiment.
This week, traders are waiting for the US Initial Jobless Claims report and GDP figures. As for the technical outlook of the S&P500, it is unlikely to rebound after Friday's sharp decline. To start an upward correction in an attempt to find the bottom, bulls need to push the price to the level of $3,677. Only after that, there could be a breakout of $3,704 and $3,744. If this scenario comes true, the pair may resume an upward momentum, heading for the resistance level of $ 3,773. A more distant target will be the $3,801 level. If the pair fails to climb, it may break through $3,643. After that, it could approach $3,608. It will open the way to the support level of $3,579. If it decreases below this level, it may decline to a low of 3,544. At this level, the index may slightly recover.
