S&P 500, Nasdaq 100, Bank of England, Federal Reserve – Talking Points

  • S&P 500 holds 3620 degree, squeezes via 3700 with ease
  • Nasdaq 100 builds on Monday’s robust shut, 11500 eyed
  • Bank of England pivots to stop chaos in home bond market

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Risk is flying throughout the US session as merchants digest main information out of the UK, the place the Bank of England (BoE) introduced a significant coverage pivot after days of main market fluctuations. The BoE introduced the suspension of deliberate gilt gross sales, whereas additionally stating that the financial institution will buy longer-dated bonds on a brief foundation. The transfer comes following a significant rout of the British Pound and gilt markets, which each noticed declines of historic proportions. The transfer by the BoE has posed the query – will the Fed observe go well with?

Following the announcement this morning, US markets soared as merchants moved to worth in bets that the Federal Reserve may quickly observe the Old Lady in altering course. The potential for a pivot has seen a pointy decline in the US Dollar Index as effectively as US Treasury yields, which has supplied equities a significant increase. The 2-year Treasury yield is down greater than 20 bps from the weekly excessive of 4.36%, whereas the 10-year yield continues to retreat away from 4%.

The bid into USTs allowed for a significant ramp in threat belongings throughout the US session, with S&P 500 futures (ES) hovering out of the 3620 help zone. Price has since sliced proper via every resistance degree throughout its ascent, with ES returning to the battleground at 3720. The relentless push by bulls to return the public sale to this space over the final week is significant, and signifies that they aren’t fairly prepared to give means at the June lows. This will definitely be the zone to watch, as the final take a look at of this space throughout Tuesday’s commerce noticed a significant dip into the 3640 space. With each headline threat and quarter finish flows driving worth motion at present, ES might proceed to squeeze as merchants spherical out 1 / 4 that actually felt like a decade. Should 3720 break, the 3756 space might supply itself as preliminary resistance.

S&P 500 Futures 1 Hour Chart

Chart created with TradingView

Like ES, Nasdaq 100 futures (NQ) have returned to a significant inflection level at 11500. Monday and Tuesday each noticed exams of this degree firmly rejected, with worth falling beneath 11150. The battle on this space will probably be key as merchants react to the massive strikes in the world bond markets. With PCE to come on Friday, merchants might want to replicate on what occurred into and following the CPI print for August only a couple of weeks in the past. A large ramp into the print was adopted by a particularly sharp drawdown, which has left us at the ranges we discover ourselves at at present.

Nasdaq 100 Futures 1 Hour Chart


Chart created with TradingView

While merchants might rejoice at the prospect of decrease yields, it is going to stay essential to bear in mind why bonds might catch a bid in the coming weeks and/or months. When the Fed finally pivots coverage, it is not going to be as a result of a recession is coming; the recession will seemingly already be right here.

Equity markets have but to see materials downgrades to 2023 earnings estimates, as many nonetheless really feel a “soft landing” is feasible. With such a scorching labor market, the Fed has made it clear that the major focus is inflation. As company America kisses goodbye to an period of “easy money,” the focus now turns to which firms can submit significant earnings that aren’t fueled by inventory buybacks.

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— Written by Brendan Fagan

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