Futures on US stock indices opened with gains but then sharply declined. S&P 500 futures fell by 0.4%, while the tech-heavy NASDAQ plummeted by 0.7%. All of this is happening ahead of significant data on retail sales in the US, coupled with rising concerns that China's slow recovery and debt issues might spread to the global economy. The unexpected rate cut by Chinese policymakers has only heightened worries about steps to revive economic growth.
In addition, following a record-breaking first half of the year in the stock markets, investors are once again looking toward the hawkish policy of the Federal Reserve, causing them to view risky assets with caution. We may witness some profit-taking and a larger market drop in the near future.
The bond market decline is also linked to investors revising expectations for future policy as the risks of high inflation have reappeared on the horizon. Treasury bond yields continue to rise, with the 10-year bond yield returning to a level of 4.23%, the highest since October of last year.
China's emergence from the pandemic-induced lockdown is certainly disappointing. The country is also struggling to prevent a potential default by the real estate developer Country Garden Holdings Co. after it missed debt payments, and no definitive solutions have been found yet. Against this backdrop, the yuan is trading at its lowest level since November.
Today, data on retail sales in the US is expected, and a strong report could further harm the stock market and risky assets, as this will likely lead to further interest rate hikes due to expectations of another inflationary surge.
In other markets, oil prices have fallen, and gold is trading near its lowest closing level since March. All of this is also due to traders revising their expectations of Fed rate cuts.
Regarding the S&P 500, demand for the index has not returned, and trading has continued within a sideways range. Bulls have a chance to continue the uptrend, but they need to settle the price above $4,488 and $4,515. From this point, there could be a surge to $4,539. Another important task for bulls will be to maintain control above $4,557, strengthening the bullish market. In the event of a downward move amid decreased risk appetite, bulls should protect $4,469. A breakout may quickly push the trading instrument back to $4,447 and $4,427.