Equities report: Enhanced uncertainty weighs on US stock markets

US stock markets started correcting lower since last Friday, with bearish movement becoming more clear and intense yesterday. Today we are to focus mainly on fundamental issues that could affect US stockmarkets including the Fed’s stance, the attack of Iran, as well as recent and upcoming US financial data. For a rounder view conclude the report with a technical analysis of US 100’s daily chart. 

The Fed’s stance

We note Fed Chairman Powell’s speech on Monday, at which the Fed Chairman pushed back against the market’s extensive dovish expectations. Fed Fund Futures implied a high possibility of the bank cutting rates by a total of 75 basis points until the end of the year, an expectation that implies a 50 basis points rate cut in one of the coming meetings. Yet the Fed Chairman in his speech highlighted the relative resilience of the labor market, despite some cooling and noted the easing of inflationary pressures, which tends to allow for some leeway for the Fed to proceed with a slower path of rate cuts. It’s characteristic that in the following interview that the Fed Chairman stated “this is not a committee that feels that it’s in a hurry to cut rates quickly” and also added that the Fed remains more data driven. The tone of the speech is expected to be followed by Fed policymakers in statements that are planned throughout the week and if actually so could weigh on US stockmarkets as the easing of financial conditions in the US economy may be slower than initially expected.

Recent and upcoming financial releases

 As for financial releases we note that the US ISM manufacturing PMI figure for September came in lower than expected yesterday, showing a wider contraction of economic activity in the US manufacturing sector, darkening by a shade the US economic outlook. The release understandably tended to weigh on US stockmarkets and should also the ISM non-manufacturing PMI figure for September retreat on Thursday, we may see it weighing on US stock markets. Next big test for US equities prices is expected to be the release of the US employment report for September on Friday. The unemployment rate is expected to remain unchanged at 4.2%, the NFP figure to edge slightly lower to 140k if compared to August’s 142k and the average earnings growth rate to remain unchanged to 3.8%yoy. Overall, should the actual rates and figures meet their respective forecasts, the market may perceive the release as indicative of a cooling US employment market, thus may weigh on the USD and support US stock markets. Yet the actual rates and figures seldom meet their forecasts and should the data show an even weaker US employment market than expected, the support for US equities markets may be enhanced. On the flip side should the data show a tightening employment market in the US, the release could weigh considerably on US stocks, as it would allow for the Fed to maintain their cautious approach in cutting rates in the coming meetings and force the market to reposition itself. As we talk about the US employment market we cannot pass the recent strikes in US east coast ports unnoticed. The strikes may not have weighed on US stockmarkets yet but are a potential risk for the US economy and should they drag on, they may weigh on US stockmarkets. 

Iran’s retaliation on Israel rattles US stockmarkets

Iran’s retaliation attack on Israel, may have been the main factor behind Tuesday’s bearish movement in US stockmarkets. It’s characteristic that the US open yesterday was bearish as the market has started to position itself in anticipation of the attack. The Iranian attack included a high number of missiles fired at military targets in Israel and had minimal casualties. The attack was successful in the sense that Iron Dome was not able to stop a number of missiles from hitting their targets, revealing the relative weakness of Israel’s air defences. Yet at this point, we also have to note that Iran had warned the US about the timing and the size of the attack in advance and it could be well assumed that the information was passed on to the Israelis. Despite the size of the Iranian attack, we view it as moderated, which in turn could be signalling a possible easing of the escalation. Yet Israel is expected now to strike back and the question looms, how hard it will strike back. Given that the degree of uncertainty and the stakes are high, we may see the market being very sensitive for the issue. Should we see further escalation and the chances of the conflict evolving into a regional war, we may see the issue weighing further on US equities, while a possible thawing of the tensions could provide a more optimistic outlook and support US stockmarkets.        

技术分析

纳斯达克现货日线图

• Support: 5675 (S1), 5400 (S2), 5175 (S3)
• Resistance: 5800 (R1), 6000 (R2), 6200 (R3)

Nasdaq has been dropping lower after failing to clearly break the 20100 (R1) resistance line. It should be noted that the drop of the index’s price action on Friday, has broken the upward trendline guiding the index since the  6    of September, in a first signal that the upward movement of the index has been interrupted. We also note that the RSI indicator has retreated nearing the readding of 50, which could imply that the bullish sentiment among market participants for the index is fading away. Yet the RSI indicator has still to break below the reading of 50 to start signaling a possible build up of a bearish sentiment for the index. Hence for the time being, we expect the index to stabilise somewhat, switching last week’s bullish outlook in favour of a sideways movement bias initially, until the market decides on the direction of the index’s next leg. For a bearish outlook, we would require the index  to break the 19470 (S1) support line thus paving the way for the 18720 (S2) support level. On the flip side for a bullish outlook we would require the index’s price action to mark a higher peak than the one last Thursday, thus it would have to break the 20100 (R1) resistance line and aim if not reach the 20800 (R2) resistance base. 

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