S&P 500 futures dipped by 0.2%, while the NASDAQ tumbled by 0.3%. European stock indices also continued to decline due to weak data from Germany and soaring oil prices, reigniting fears of stagflation in the eurozone. The Stoxx 600 index slid by 0.7%, posting its sixth consecutive drop. Sharp declines in factory orders in Germany in July and a drop in retail sales in the eurozone indicate ongoing economic troubles in the EU, extending into the third quarter. Concerns about slowing economic growth and stubborn inflation were further exacerbated as oil prices remained around $90 per barrel after OPEC+ extended supply cuts until year-end.
Notably, Goldman Sachs Group Inc. warned of the risks of Brent crude reaching $86 per barrel by year-end, while UBS Global Wealth Management predicts that Brent and WTI prices may close the year at $95 and $91 per barrel respectively.
The Eurozone and the UK are teetering on the brink of the first signs of a recession, a topic the markets had forgotten about three months ago. Further economic slowdown, coupled with manufacturing troubles in the Eurozone and a sharp downturn in the UK's service sector, indicate sluggish GDP growth in these countries. This means that the stock market is likely to remain under pressure this autumn.
Meanwhile, the relative stability of the US economy has bolstered the US dollar and weakened the euro. Market sentiment increasingly leans towards the European Central Bank postponing interest rate hikes at its next meeting. Many Wall Street players have already revised their forecasts for the ECB's future policies, emphasizing a pause. While some believe the greenback is overbought, the pressure is currently in favor of a stronger US dollar. If the ECB keeps rates unchanged, the downward pressure on the currency pair will intensify.
The Japanese yen reclaimed some ground against the US currency after the head of the central bank issued the strongest warning in weeks against the yen's rapid decline. Traders expect the central bank to intervene in the near future amid speculative moves in the market. Notably, the yen has already dropped to a 10-month low against the US dollar.
As for the S&P 500, demand for the index remains, but upward potential is limited. Bulls need to take control at $4,515. From this level, they may push the price to $4,539. Bulls also need to maintain control over $4,557, solidifying the bull market. In the event of a downward move due to reduced risk appetite, bulls will have to protect $4,488. Breaking through this level, the trading instrument may return to $4,469, plummeting to $4,447.
