S&P 500 below 50-day MA, VIX up 11% as market caution persists: S&P 500, NZD/USD, GBP/USD
The pull-ahead in US retail sales validates soft landing hopes but also leaves room for rates to be kept high for longer, with market sentiments seemingly placing their focus on the latter.
The pull-ahead in US retail sales yesterday provided some validation for soft landing hopes but also left room for rates to be kept high for longer, with market sentiments seemingly placing their focus on the latter. The July retail sales figure increased 3.2% from the previous year, far outpacing the 1.5% forecast. Month-on-month, retail sales were up 0.7% versus the 0.4% consensus, reflecting the prevailing resilience in US consumer demand.
That said, market participants took the chance to de-risk further, sending all three major US indices lower by more than 1%. The VIX jumped 11% as a sign of increased market caution, especially with real-time inflation estimates suggesting that headline inflation is likely to pull further ahead in August. Moves in US Treasury yields were more measured overnight, with the 10-year yields defending its 4.20% level, while the US dollar index continues to challenge its 200-day moving average (MA).
The S&P 500 is down 1.2% overnight, bringing the index back below its key 50-day MA for the first time since March this year while its daily relative strength index (RSI) fell further below the 50 level. The 4,300 level could be on the radar, having marked the lower edge of its Ichimoku cloud on the daily chart, alongside its 100-day MA. On the broader trend, the upward trend in the index remains intact, which could still keep any formation of a higher low on watch.
Asian stocks look set for a negative open, with NIkkei -1.10%, ASX -1.27% and KOSPI -1.40% at the time of writing, tracking the downbeat performance in Wall Street overnight. A recent set of disappointing economic data out of China has not been encouraging for the region as well, with the aggressive 15 basis-point (bp) cuts to its one-year policy interest reflecting the severity of the economic weakness that authorities foresee to drag on for longer.
Ahead, the Reserve Bank of New Zealand (RBNZ) interest rate decision will be in focus. With inflation data drifting lower according to script, rate expectations are firmly priced for the central bank to keep rates on hold at the upcoming meeting. Any clues on New Zealand’s rate outlook will be sought in the RBNZ press conference, although sticking to its data-dependence stance for future rate decisions may still be the likely scenario.
For now, the NZD/USD continues to trade on a near-term downward bias, with a falling channel pattern firmly in place. On the weekly chart, its Ichimoku cloud resistance has been keeping a lid on upside, with the pair failing to overcome it on multiple attempts since the start of the year. Its weekly RSI heads further below the 50 level as a reflection of sellers in control. The 0.590 level may be on watch ahead, failing to defend the level may potentially pave the way to retest the 0.575 level next.
On the watchlist: GBP/USD attempting to defend its 100-day MA ahead of UK inflation data
The GBP/USD has been stuck in a series of ranging moves over the past two weeks, attempting to defend its key 100-day MA lately, which stands alongside the Ichimoku cloud support on the daily chart. Thus far, the formation of long-legged bullish pin bars at the 100-day MA seems to reflect the line as a crucial support watched by the bulls. That leaves the 1.264 level in focus ahead, with any breakdown of the level potentially paving the way to retest the 1.239 level next, where its 200-day MA resides.
Expectations are for both UK headline and core figures to ease further to 6.8% for July, versus the previous 7.9% and 6.9% respectively. Given that inflation is still too high for comfort, particularly the limited progress in the core aspect, further rate hikes are firmly priced for the Bank of England (BoE) through the rest of the year. A more persistent showing in inflation data ahead will likely feed into hawkish bets and validates views of further tightening, which may aid to support the GBP/USD.
Tuesday: DJIA -1.02%; S&P 500 -1.16%; Nasdaq -1.14%, DAX -0.86%, FTSE -1.57%
The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer.
Act on share opportunities today
Go long or short on thousands of international stocks with CFDs.
- Get full exposure for a comparatively small deposit
- Trade on spreads from just 0.1%
- Get greater order book visibility with direct market access
See opportunity on a stock?
Try a risk-free trade in your demo account, and see whether you’re on to something.
- Log in to your demo
- Take your position
- See whether your hunch pays off
See opportunity on a stock?
Don’t miss your chance – upgrade to a live account to take advantage.
- Trade a huge range of popular stocks
- Analyse and deal seamlessly on fast, intuitive charts
- See and react to breaking news in-platform
See opportunity on a stock?
Don’t miss your chance. Log in to take your position.
Live prices on most popular markets
You might be interested in…
Find out what charges your trades could incur with our transparent fee structure.
Discover why so many clients choose us, and what makes us a world-leading provider of CFDs.
Stay on top of upcoming market-moving events with our customisable economic calendar.