SPX FUNDAMENTAL BACKDROP
The S&P 500 index remains under pressure (with US equity futures pointing at yet another red open) despite the turnaround in yesterday’s trading session that saw a marked pullback after hawkish Fed speak. Governor Christopher Waller suggested that the Federal Reserve may need to raise rates higher than what is already being priced in (see table below). This came after better than expected jobless claims data that supplemented the already tight labor market in the US.
FEDERAL RESERVE INTEREST RATE PROBABILITIES
The US 2-year Treasury yield shown below breached the November 2022 swing high at 4.881% but swiftly pulled back below. Treasury markets are now at a key inflection point that could be hesitating before another leg higher in which case US stocks will likely continue their decline on weaker valuations. On the contrary yesterday’s long upper wick is traditionally associated with subsequent downside and may point at a peak in the recent hawkish repricing of the Fed’s rates.
U.S. 2-YEAR GOVERNMENT BOND YIELDS
Later today, the ISM services PMI release will dominate headlines over the S&P report which is viewed in a lesser manner in the US. This report is key for markets as the US is primarily a services driven economy and while expectations are set to decline for February, the figure remains within expansionary territory. The trading day will close off with a host of Fed speakers who will likely continue with their aggressive tone even if PMI data misses.
U.S. ECONOMIC CALENDAR
SPX WEEKLY CHART
The weekly SPX index chart above shows the rising wedge chart pattern (black) flirting with a break lower and this weeks candle close will prove key to next week’s directional bias. A close lower could likely open up a move down towards the 3900.00 psychological level.
Focusing in on the shorter-term daily chart, the 200-day MA (blue) has been a firm port of call for bulls who have defended this zone in three separate sessions of late. Weak fundamental data could catalyze a breakthrough while a close above 4000.00 could invalidate a short-term push lower.