Yesterday, US stock indices closed mixed. The S&P 500 declined by 0.16%, while the Nasdaq 100 dropped by 0.76%. The industrial Dow Jones rose by 0.44%.
Equity indices advanced and the dollar weakened as optimism around a potential interest rate cut by the Federal Reserve revived risk appetite and outweighed renewed US-China trade tensions. Markets recovered much of the previous week's losses as traders focused on the prospect of a more dovish monetary policy signaled by the Fed, while largely ignoring continued reports of difficulties in US-China trade negotiations.
A growing conviction of an inevitable Fed rate cut exerted pressure on US Treasury yields, making the dollar less attractive to investors. This, in turn, supported asset prices denominated in other currencies and triggered a rally in equity markets. However, lingering uncertainty surrounding US-China trade relations continues to have a dampening effect on investor sentiment.
Further escalation of the trade war could offset the positive impact of a Fed rate cut and once again redirect capital into safe-haven assets such as gold and Treasuries.
Asian stocks jumped 1.9%, marking the largest intraday gain in over two months, after Fed Chair Jerome Powell's concerns about labor market weakness bolstered expectations of a rate cut in October. The yield on two-year US Treasury notes remained near its lowest levels since 2022. Gold reached a new peak.
Powell signaled that the US central bank intends to cut interest rates by another quarter point at the end of this month, despite the government shutdown significantly reducing the Fed's capacity to forecast economic trends. Swap contracts are pricing in a total rate cut of approximately 1.25 percentage points by the end of next year, compared to the current range of 4-4.25%.
Meanwhile, US Trade Representative Jameson Greer stated that escalating tensions with China over export controls are expected to ease following negotiations between officials from both nations. Trump also expressed cautious optimism about the possibility of a positive outcome. "We have a fair relationship with China, and I think it'll be fine. And if it's not, that's okay too," Trump told reporters Tuesday at the White House. "We're taking a lot of hits, but we've made great progress."
As for the technical picture of the S&P 500, the key objective for buyers today will be to overcome the nearest resistance level of $6,672. This would support further price appreciation and open the path toward a push to the next level at $6,682. No less important for bulls will be maintaining control above the $6,697 mark, which would strengthen buyer positioning. In the event of a downside move amid declining risk appetite, buyers must assert themselves around $6,660. A break below this level would quickly push the instrument back to $6,648 and open the way to $6,638.
