Futures for the US stock indices dipped lower. US government bonds fluctuated in a narrow range in morning trading ahead of the Fed's meeting minutes. Traders hope to get clues whether rates will be even higher than expected by the summer of this year.
Futures contracts for the S&P 500 index fell by 0.2%, and for the Nasdaq, they lost about 0.3%. European stock indices also declined amid growing concern about the low net profit of many companies. The US dollar rose slightly. Oil futures declined.
As I have mentioned above, the stock market maintained a bearish bias yesterday amid signs that the world's central banks would hardly abandon monetary tightening in the near future. They also do not forget hawkish comments from Fed officials last week. The growing geopolitical tensions also worsened the sentiment in stock markets despite optimism about the reopening of China's economy.
The Fed is still unable to rein in inflation. Therefore, it could be forced to hike key rates higher to cap inflation and cool down the labor market. Optimism about a policy reversal that pushed stocks up earlier this year waned quickly. Besides, investors are concerned about the difficulties the US economy may face in the middle of this year.
Short-term government bonds rose while long-term ones dropped. For this reason, the yield on 2-year bonds decreased by 3 basis points from the highest level since the start of November. Investors are factoring in a rise in rates to a restrictive level of 5.3% in June this year. Notably, 3 weeks ago, the majority assumed that the restrictive level would be 4.9%.
Many economists also believe that the US is still unable to combat soaring consumer prices. For example, analysts at the BlackRock Investment Institute doubt that inflation is on its way back to its target level. "We think investors are realizing that sticky core inflation may mean the Fed hikes rates further – and holds them there for longer – than markets had expected," they stressed.
Oil prices also nosedived due to the prospects of more aggressive interest rate hikes by the Fed to tame inflation. Even the news about improving demand in China failed to facilitate the growth of oil prices.
As for the technical outlook of the S&P 500, risky assets are down due to low risk appetite. The index may recover only if the bulls manage to push it above $4,010 today from $4,038. The bulls also need to take control over $4,064, which will undermine the bear market. Only after that, the index may rise to $4,091. In case of further downward movement amid the hawkish tone of the Fed meeting minutes as well as the lack of demand, buyers will have to defend $3,983. If the index falls below this level, it could decline to $3,960 and $3,923.
