Forex Analysis & Reviews: US premarket on December 5: the US stock market is on the verge of collapse
time 05.12.2022 02:59 PM
time Relevance up to, 06.12.2022 01:59 PM

Bond yields increased due to inflation risks and uncertainty regarding the direction of interest rate policy, which caused the US stock index futures to open in the red. The labor market data released on Friday, which surprised many, clearly indicates that it is too early to raise interest rates, despite Jerome Powell, the head of the Fed, saying last week that they should be raised more gradually.

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S&P 500 futures contracts fell by 0.4%, while Nasdaq 100 contracts fell by 0.3%. The minus 0.2% for the Dow Jones Industrial Classic represents the least loss. As mentioned above, the yield on Treasury bonds increased once more, bringing the dollar index back to positive dynamics. The most policy-sensitive yields, those on two-year bonds, rose to their highest point this month.

A stronger-than-anticipated US employment report last week and a significant rise in the average hourly wage indicate new inflation risks and higher bond volatility. The Fed's dovish outlook is restraining bond yields, but expectations of higher rates in 2019 will inevitably cause the gap to close.

But despite the indices' slight decline, this continues. Experts predict that the S&P 500 will experience its strongest fourth-quarter growth since 1999. The demand for risky assets remains stable due to the perception that US inflation has peaked and bond yields have stabilized. However, Friday's labor market data increased the likelihood that the Fed will continue to raise borrowing costs next year and catch up to them at the level of 5.0%.

Given that the Santa Claus rally could end soon, Morgan Stanley advises investors to take profits now. After the S&P 500 tested its 200-day moving average last week, it is expected to start declining again.

After Chinese authorities lowered the standards for COVID testing in major cities, Asian stocks increased. As the number of cases and public protests rise, Beijing is expected to continue to develop a gradual phase-out of its strict COVID Zero policy.

Due to the potential for increased demand from China, other commodities, such as oil, also increased in price.

Regarding the S&P 500's technical picture, the index stays within the side channel after a quick flight, demonstrating the traders' pause. Today's top priority will be safeguarding $4,064 in cash. While trading will take place above $4,064, we should anticipate a rise in interest in risky assets. This will set up favorable conditions for the trading instrument to be strengthened and grow to $4,091, potentially reaching $4,116. If broken, the slightly higher level of $4,150 will increase optimism for an additional upward correction leading to an exit at the resistance of $4,184. Buyers have to declare themselves in the vicinity of $4,064 since pressure on the index will resume below this level in the event of a downward movement. The trading instrument will move to $4,038 quickly if this range is broken, with the $4,003 region serving as the farthest target.

Jakub Novak,
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