Futures on US stock indices slightly increased and stabilized after yesterday's pullback, which occurred after investors locked in profits. The reporting season is going on and investors are reacting quite nervously to the results. On the one hand, they are trying to find something positive and good in them. On the other hand, they fear the impact of high-interest rates on companies, especially from the technology sector. In other words, sharply hiking in inflation and an impending recession with a strong start to the reporting season are putting pressure on investors. Meanwhile, the British pound fell after UK inflation rose faster than economists had expected. The euro managed to hold steady as inflation in the eurozone was slightly better than economists' forecasts.
Futures on the S&P 500 index rose by 0.4%. Futures on the high-tech Nasdaq 100 index added 0.6%.
As it is noted above, the British pound weakened after a surge in food prices caused UK inflation to reach double digits again in September, hitting a 40-year high of 10.1%, and increased pressure on the central bank and forced Liz Truss' government to act more aggressively. Clearly, the future prospects for the UK are very dim, making the US dollar more attractive than the British currency.
Meanwhile, Treasury yields remain near multi-year highs ahead of the release of US housing market data for September and the Fed's Beige Book. The 10-year bond yield stands at 4.06%.
As for the reporting season, encouraging company financial results helped support risk appetite in recent trading sessions. At the same time, investors have to keep an eye on global economic weakness, high inflation, and decisions by the Fed and other central banks. Yesterday's report from Citigroup Inc. says the US now has a higher chance of a recession than it has had in a long time. Against this backdrop, many companies are expected to adjust their forecasts and future earnings estimates, which could limit the upside potential in the stock market. US bonds are still the least risky but it is possible that they do not yet fully account for the possibility of a recession in the US, which would be caused by further hawkish steps taken by the Fed.
Last month, several Fed officials advocated raising the key interest rate by more than 75 basis points, which is necessary to keep inflation under control, the minutes of the Fed meeting read.
At the same time, oil prices rose slightly amid fears that European Union sanctions against Russian fuel could exacerbate market tensions. The Biden administration is expected to announce a plan today to release 15 million barrels from emergency oil stocks to reduce high gasoline prices.
As for the technical picture of the S&P 500 index, after yesterday's active growth phase, the index is trying to break through the resistance of $3,735 again today in the premarket. It is more of a gamble to buy at the current highs. However, if you buy the instrument as part of a medium-term strategy, there is nothing to worry about. As long as the index is trading above $3,699, we can expect the demand for risky assets to persist. It also creates good conditions for further strengthening of the trading instrument and a breakthrough of $3,735. Bulls may count on it at the beginning of the trading session. Only this scenario may strengthen expectations for further upward correction to the resistance of $3,773. The most distant target is in the area of $3,801. If the price goes down, bulls will have to act near $3,699 and $3,661. However, if these levels are pierced, the instrument may be dragged down to $3,621 and a new support level of $3,579, a new yearly low.