US stock index futures continue to fall, as do Treasury bonds. Investors remain on edge ahead of the report, according to which inflation in the world's largest economy may slow down for the fourth month in a row. If this is not the case, and we see another inflationary jump up, do not be surprised if key stock indices go to update annual lows.
December futures contracts for the S&P 500 and Nasdaq 100 sank by 0.2% and 0.3%, respectively, continuing their bear market observed yesterday amid the blurred interim verdict on the US congressional elections and turmoil in the crypto industry. Treasury bonds fell, and yield curves began to flatten again. Despite this, the dollar strengthened several positions against risky assets. Two-year Treasury bonds, the most sensitive to monetary policy, fell, and yields added three basis points. The yield on 10-year securities jumped by one basis point.
As noted above, investors expect clearer signs that inflation in the US has already reached its peak, and it is unlikely to rise above 40-year highs in the near future. If this is the case, we can expect a slowdown in the pace of monetary policy tightening by the Federal Reserve System - a direct signal to the growth of stock indices to build a new long–term upward trend.
Economists predict that US inflation fell to 7.9% year-on-year in October, but traders remain cautious, given that this year's final results have repeatedly exceeded forecasts. According to the JPMorgan Chase & Co. scenario, the S&P 500 could rise by more than 5% if inflation falls below 7.6%. However, if prices continue to rise, the index could easily lose more than 6% quickly.
Price growth can be painful, given the current dynamics of risk aversion: investors are quite nervous about the next collapse of the cryptocurrency market, the unclear situation with the elections in the United States, and endless problems with COVID in China.
It is worth noting that in the midterm elections in the United States, Republicans are seeking to gain control of the House of Representatives, but now the margin is much smaller than predicted. The race for the Senate also continues, and everything is very difficult there.
China's struggle with COVID also affected the prospects for oil demand, resulting in West Texas Intermediate crude futures falling to $85 per barrel. As for the cryptocurrency market, the hard sell-off continues. Investor sentiment is depressing, especially after Binance refused to buy FTX due to the company's huge debt of $ 8 billion. Bitcoin was trading below $16,600 at the moment.
As for the technical picture of the S&P500, after yesterday's sell-off, the pressure remains. The main task for buyers now is to protect the support of $3,375. As long as trading is conducted above this level, we can expect a return in demand for risky assets – especially in the case of lower inflation in the United States. This will create good prerequisites for strengthening the trading instrument and returning $3,773 and $3,808 under control, just above the level of $3,835. A break in this area will strengthen the hope for an upward correction with an exit to the resistance of $3,861 and $3,905. The farthest target will be the $3,942 area. In a downward movement, buyers must declare themselves in the $3,735. A breakdown of this range will quickly push the trading instrument to $3,699 and open up the possibility of updating the support of $3,661.