US index futures fell along with European markets in the first half of Thursday’s session, ahead of the publication of key US data. Concerns over rising interest rates has dampened risk appetite, hurting the Nasdaq outlook in the short-term outlook.
What is driving markets?
If you want to know what really is driving asset prices, look no further than the bond markets. Investor realisation that more interest rate hikes are potentially on the way caused government bond yields to rise further, something that hurt zero-yielding gold and held back global equities yesterday. Interestingly, the Nasdaq and other US indices fell a lot less than their European counterparts, but that could change if yields continue to press higher.
Source: TradingView.com
Hawkish Fed will be more data dependant moving forward
The latest upsurge in yields was triggered by the June’s FOMC meeting minutes, which offered little reason to doubt the Fed will go ahead with a hike this month. The market is almost 90% this will be the case. I doubt this pricing will fall significantly with any small misses in upcoming US data. It will take a very bad ISM PMI and a bigger-than-expected rise in the unemployment rate to push the pricing of a July hike below 50% this week.
Source: CME Group
Key US data eyed
Today’s key data release is undoubtedly the ISM services PMI for June. Last month, the PMI fell to 50.3, and surprised on the downside. This time, analysts are expecting it to bounce back to 51.2. This means the scope for disappointment is there, and if we see a drop into contractionary territory then recession alarm bells will be ringing loudly again. That’s because the ISM manufacturing PMI has already been sub-50.0 in the past eight months.
Ahead of the PMI data we will also have some labour market data to consider, which include the weekly jobs report and more to the point, the ADP payrolls for June.
The JOLTS job opening figures for May will be published later at the time as the ISM PMI.
What some of my colleagues think
My colleague Fiona Cincotta earlier noted that the FOMC officials are looking to hike rates again in July and beyond amid “concerns over sticky inflation, which is unacceptably high... However, there were also signs of divisions within the committee over the pace and extent of further hikes, as interest rates have been lifted to a level that is considered restrictive. The Fed will be more data-dependent than before.”
My stock market specialist colleague Joshua Warner has reminded investors to keep an eye on the US-China relations, which “remains in focus after China introduced curbs on exports of key metals needed for high-tech applications, just before US treasury secretary Janet Yellen visits China for a three-day trip.”
Nasdaq outlook: Technical analysis
From a technical point of view, the Nasdaq has hit resistance around 15200-15250 area, where it had previously struggled in the past – see the chart.
Source: TradingView.com
Naturally, you would expect to see some reaction here, as we have seen. Unsure whether to sell or hold, the actions of traders on Wednesday helped the index to create a doji candle here. This shows indecisiveness and an early signal that the market may have formed at least a temporary top.
What is lacking so far is confirmation.
A beak and hold below Wednesday’s range is what the bears will be looking for today. If seen, that would also encourage the bulls to take profit on what has been a very good year so far in tech sector, especially considering everything that’s going on from a macro point of view. It would tip the Nasdaq outlook in the favour of the bears, at least temporarily anyway.
While the abovementioned pattern does look bearish, it has not been confirmed. So, remain open minded to the possibility that the 15200 resistance level could still break to the upside. With that in mind, a potential close above Wednesday’s high would invalidate any bearish signals that have emerged so far this week.
-- Written by Fawad Razaqzada, Market Analyst
Follow Fawad on Twitter @Trader_F_R
