FX.co ★ US premarket on August 17: US stock market corrects

In premarket trading, the US stock market signaled a significant correction on August 17. Futures on US stock indices initially opened with gains, but then continued the decline observed throughout the entire week. S&P 500 futures dropped by 0.2%, while the high-tech NASDAQ posted a 0.3% decline. After assessing the minutes from the July meeting, investors were assured that the US Federal Reserve had not yet completed its interest rate hike cycle. However, the final decision of the Fed indicates that although the committee is unanimous on interest rates policy, there is a dovish faction advocating for a softer approach to future steps.

As a result, bond market movements were abrupt and rapid. Today, the yield on 10-year Treasury bonds increased by four basis points to 4.29%, nearing the highest level since 2007. In the UK, the yield on bonds with an equivalent maturity reached 4.71%, the highest level since the 2008 financial crisis.

This undoubtedly proves that traders are taking the prospect of another Fed rate hike more seriously than ever. The futures market now indicates a 45% probability that the committee will continue raising rates after the pause scheduled for September this year, likely in November. The rise in bond market yields also indicates that investors are adjusting to the possibility of rates staying elevated for a longer period.

China continued to influence sentiments as well. Reports from real estate agents and data providers suggest that the real estate market downturn might be worse than official reports indicate. Figures show that prices for existing homes have already dropped by at least 15% in major cities like Shanghai and Shenzhen. China also intensified efforts to stabilize its national currency, but this has had little effect so far as the offshore yuan continued to decline against the US dollar. Economists note that the current situation in the Chinese economy resembles the challenging summer of 2015, with housing market issues and a shadow banking system.

Meanwhile, Brent crude halted its three-day decline, trading at $84.20 per barrel. Gold rebounded after dipping below $1,900 per ounce for the first time since March this year.

As for the S&P 500, demand for the index has not yet returned. Bulls have a chance for a correction, but they need to gain control at $4,427 and advance to $4,447. A move from this level could lead to surges at $4,469 and $4,488. Bulls also should maintain control above $4,515, solidifying the bullish market. If a downward movement occurs due to decreased risk appetite, bulls will have to protect $4,405. A breakthrough may swiftly push the trading instrument back to $4,382 and $4,340.