Lack of catalyst last night, US equities pared early gains and closed unchanged from Thursday’s level. Sector wise, gain in the healthcare (+0.47%), utilities (+0.36%), real estate (+0.28%) and information technology (+0.22%) offset losses in the industrials (-0.49%), financials (-0.41%), energy (-0.39%) and consumer discretionary (-0.22%).
Markets reshuffled post the ‘hawkish Fed cut’ in the Federal Open Market Committee (FOMC) meeting this week, with traders trying to unwind expectation for more cuts by year-end. Dollar index rebounded, equities have been sold off in most part of emerging markets, crude oil prices slid on Saudi’s fast recovery in output and contained geopolitical tensions. The likelihood of one more Fed rate cut this year is now at around 60%, according to CME’s future-implied probability.
Macroeconomic outlook continues to deteriorate as the OECD slashed global growth forecast for this year to 2.9%, the lowest level since the subprime crisis back to 2007-2008. This forecast marks a drastic slowdown from last year’s growth rate of 3.6%. Among all the headwinds, trade risk is on top of the list. The policy forum saw global trade growth fall from 5 percent in 2017 into negative territory now, citing adverse impact from trade tensions on business confidence and investment growth.
Several concerns are inhibiting risk-taking in the post-FOMC days, including worsened global outlook, an undecided Fed, and the upcoming US-China trade negotiations. The S&P 500 index is facing strong resistance at 3,024 points, a level that a few attempts have failed to break out from. Perhaps more monetary or fiscal stimulus, and positive catalyst on trade front are needed for the US equities to defy gravity in the weeks to come.
Gold price is ranging at around $ 1,500 area, waiting for updates from US-China talks and the US response to the Saudi attack to find a clear direction. US dollar index is hovering at a tight range of 97.8-98.2 range, giving little clue to the precious metal prices.
In short, markets are in limbo status following the FOMC. But this won’t last for long as the clock is ticking towards China’s 70 years anniversary, which falls on October 1st. How would Hong Kong’s protests develop in the next 10 days and whether mainland policymakers will take action to contain the riot will be closely watched by market participants. The development of US-China trade negotiation before and after the big date is also full of uncertainty. The resurge in volatility is a matter of time.
US SPX 500 - Cash
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Margaret Yang Yan