Equity Markets Under Pressure

EQUITY INDICIES:

While equity markets are under pressure this morning because of a global IT outage, the markets have not benefited from the growing chorus of global rate cut expectations this week and from very significant chart damage this week. Therefore, equities are likely to remain under pressure as mega tech sentiment remains bearish and rotation into smaller tech stocks appears incapable of supporting the broad market. Fortunately for the bull camp, rate cut chatter, Netflix beating subscriber targeting, buyout interest in the Open AI space, the authorization of Eli Lilly’s weight loss drug in China and declining inflation fears should continue to discourage some sellers. However, fresh bearish fundamental news was released overnight from lower Tesla California car registrations (for the third quarter in a row), the firing of a Citigroup COO (because of deceptive regulatory management) and from the global IT global IT disruption. However, anxiety is not rampant or severe, but sellers remain incentivized by ongoing international trade war threats in the chip sector.

INTEREST RATES:

As indicated already a wave of slowing fears has permeated the market after the release of the US Fed Beige book which showed many Fed districts softening and forecasts of slower growth because of the looming election, restrictive domestic policies, geopolitical tensions, and lingering inflation. However, treasury prices are trading counter to bullish fundamental issues in a sign of an overbought status and perhaps a largely factored September rate cut. In fact, with the net spec and fund long in treasury bonds last week in somewhat unusual net long positioning territory and treasury bonds adding 2 ½ points since the COT report the net long was significant at this week’s high. The trade is also returning to curve steepening bets because of slowing and that has tempered pressure on short term yields and provided minimal (relative) yield support on the long end. On the other hand, trade sentiment improved yesterday toward the US economy with fears of a hard landing dissipating following the last monthly US jobs report.

CURRENCIES:

As in other financial markets the currency markets are also trading counter to classic fundamental signals with the dollar falling in the face of a rising chorus of Federal Reserve member rate cut signals. While it seems like the US is winning the rate cut derby, the global IT outage and soft international data overnight has prompted some flight to safety buying of the greenback. It is also possible the dollar is benefiting from this week’s increase in the prospects of a pro-growth/business president next year. However, a lack of US scheduled data today (meaning no negative economic news) should thin fundamental resistance for the dollar especially given soft global data. Initial resistance in the September dollar index today is 104.20 with buying support at 103.84. While the euro should have benefited from a slight uptick in German PPI readings (tempering EU rate cut hope) a sharp drop in EU construction output and increasingly dovish ECB statements has caught the euro overbought on the charts. It should be noted that Christine Lagarde tempered ECB rate cuts by suggesting the decision to cut rates in September was “wide open” and indicated market projections for EU rate cuts are largely correct. Another supportive development is reports of record tourism in Japan (from very strong foreign tourism purchasing power) and because intervention continues to hover in the background. Even though the Canadian appears to have forged consolidation a low, has posted a double low and is at even number support at 73.00, a rebound in the May Canadian employment insurance beneficiaries’ count yesterday, and expectations for very discouraging retail sales report this morning

Interested in more futures markets?  Explore our Market Dashboards here.