US open: Stocks drop, USD rallies as Fed fallout continue

Stocks set to open sharply lower, the US Dollar in the rise as a quiet economic docket leave investors digesting the Fed's move for another session. Beware of triple witiching!

USA (2)

US futures

Dow futures -0.95% at 33498

S&P futures -0.8% at 4190

Nasdaq futures -0.5% at 14080

In Europe

FTSE -1.4% at 7073

Dax -1.41% at 15509

Euro Stoxx -1.3% at 4104

Learn more about trading indices

Dow under performs again

US stocks are pointing to a sharply lower start, with the Dow under-performing its Wall Street peers for a second straight session. The Dow closed -0.6% lower in the previous session, whilst the Nasdaq closed 0.87% higher.

The reflation trade which saw investors rotate out of high growth and into value stocks looks to be unwinding. As the tech heavy Nasdaq hit a fresh record high on Thursday, the Dow broke below a key support.

The timing of this unwinding is interesting, because it comes as the Fed indicates towards tighter policy. Usually, higher interest rates are supportive of gains in cyclicals and value stocks. Perhaps the Fed has calmed the market that inflation won’t overheat?

There is no high impacting US data due today and the earnings calendar is also quiet. It is however, triple witching Friday with options and futures on indices and equities set to expire. This can lead to higher levels of volatility.

Equities

Adobe trades +3% pre-market after reporting Q2 results which easily beat forecasts. EPS came in at $3.03 on revenue of $3.84 billion.

Where next for the S&P500?

The S&P 500 extends declines from its all time high of 4267 reached earlier in the week. The price has fallen below the 50 sma on the 4 hour chart but remains supported by the 200 sma and the ascending trendline dating back to November. Strong support can be seen at 4195, the confluence of the 200 sma, the ascending trendline and the weekly low. A move below this level could see the downside gain momentum. A move above 4230 the 50 sma is required for the buyers to look again towards 4267.

FX – USD trades at 2 month high, GBP falls on weak retail sales

The US Dollar continued to drive higher on its post Fed buzz. The US Dollar Index trades at a two month high.

GBP/USD trades under pressure following worse than forecast retail sales. UK retail sales unexpectedly declined in May by -1.4% MoM, this was down from an impressive 9.2% increase in April as non-essential retail re-opened.  Expectations had been for a rise of 1.6%. The weaker print is unlikely to be owing to falling consumer confidence but rather than households are spending money on eating out as indoor hospitality reopened on May 17.

GBP/USD  -0.2% at 1.3895

EUR/USD  +0.05% at 1.1910


Oil slips lower on USD strength

Oil prices are moving lower for a second straight session, although the uptrend remains intact. A stronger US Dollar after the Fed’s hawkish surprise has weighed on demand for the US Dollar denominated commodity. Fundamentally the picture remains sound for oil which is keeping losses limited. International travel is on the cusp off kicking off again as the EU adds the US to its safe travel list.

Concerns over Iranian oil flooding back into the market have lingered over recent weeks as Iran and the US hold direct talks over reviving the 2015 nuclear deal. Iran’s top negotiator said progress was being made on Friday. However, the election of a new President in Iran who is already sanctioned by the US is unlikely to help relations.

US crude trades -0.6% at $70.41

Brent trades -0.67% at $72.06

Learn more about trading oil here.

The complete guide to trading oil markets


Looking ahead

18:00 Baker Hughes rig count


How to trade with City Index

Follow these easy steps to start trading with City Index today:

  1. Open a City Index account, or log-in if you’re already a customer.
  2. Search for the market you want to trade in our award-winning platform.
  3. Choose your position and size, and your stop and limit levels.
  4. Place the trade.



More from Interest rates

Disclaimer

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

StoneX Financial Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit cityindex.com.sg for the complete Risk Disclosure Statement.