On Tuesday, US stock index futures traded in a variety of directions as traders continued to speculate and assess the likelihood of a further slowdown in the rate hike pace in the US against the backdrop of data suggesting that tougher policy may be needed going forward - particularly in circumstances where the economy can withstand such tests. S&P 500 futures are trading slightly higher, while Nasdaq 100 futures are trading slightly lower. After a seven-week rally that has been gradually weakening, European stock indexes have made a small adjustment.
As I mentioned above, a stable US economy and a stable inflation rate are now inseparable. All of this harms expectations for a slower rate hike and the end of their growth cycle next year and also cancels out the positive mood that investors felt in light of the Chinese economy's recovery.
We can safely expect solid volatility at the end of the year because the US central bank is likely to continue to have a significant impact on the stock and bond markets in December of this year. The S&P 500 will continue growing at its fastest rate in the fourth quarter since 1999, but its pace will undoubtedly slow. Since the index is currently trading below its 200-day moving average, a correction might occur. Only 2% of this month's losses have been realized so far.
While the yield on 10-year Treasury bonds remained unchanged at 3.57%, bond yields also stopped increasing. Strong economic data for the US and PMI indices for the services sector have reignited talk of a rate increase. Traders have just experienced the data on the labor market, and there is another shock. Interest rate swaps indicate that the peak will exceed 5% in mid-2023. The benchmark set by the Fed is currently between 3.75% and 4%.
After four consecutive increases of 75 basis points, officials currently abstaining from public comment before the committee meeting suggested last week that the rate would only need to be raised by half a point on December 13–14. When economists' average forecast assumed rates at 4.6% next year, there was also talk that they would need higher rates than anticipated.
Beijing, meanwhile, has declared that it will do away with COVID testing requirements for the majority of businesses open in public areas, which is seen as a step away from the COVID Zero policy. However, despite some positive dynamics in Asian markets, risky assets did not receive much support in response to this news.
Regarding the S&P 500's technical picture, there has been a correction following a sharp increase in the price index. For today, it will be important to safeguard $4,003. We can anticipate a rise in demand for risky assets as long as trading continues above $4,003. This will set up favorable conditions for the trading instrument to strengthen and grow to 4,038 and 4,064, with the potential to reach $4,091. The slightly higher levels of $4,116 and $4,150 will increase the likelihood of an upward correction with an exit to the resistance of $4,184 if they are broken. Buyers need only declare themselves in the vicinity of $4,003 in the event of a downward movement, as below this point, the index will once again be under pressure. The trading instrument will move to $3,968 if this range is broken, with the $3,942 region serving as the farthest target.
