3rd October 2019 - The fear of US recession contains the market sentiment

Walid Salah Eldin

Active member
The worries about the US economic outlook are still dominating the market sentiment sending the US equities down and putting pressure on the greenback versus its rivals, After US ISM Manufacturing index deterioration to 47.8 in September to record its lowest level since July 2009, after 6 consecutive monthly slippages since rising to 55.3 last March.

The steep contraction of manufacturing sector which accounts for nearly 12% of the US economy and 8% of the labor market could spark a new wave of safe haven demand and elevated the hopes for much lower interest rate to come.

While the markets are waiting now for the release of Sep US ISM non-Manufacturing index which is expected to show today retreating to 55.1 from 56.4 in August.

The gold could spike up for trading again above $1500, after falling extension to $1458.93 in the beginning day of this new quarter.

USDJPY slumped for trading now near 107 on usual unwinding of carry trades in the benefit of the low cost currencies such as JPY, As the demand for safer haven could gather momentum recently weighing down on US UST 10yr yield which has slid below 1.60% to make USD less attractive versus its rival currencies.

Following the beginning of yesterday US session, it was inevitable to see S&P 500 future rate slide extension to 2880 area

As 2927.50 could easily cap the index shy try to rebound, After Sep US ADP Employment Change report has shown adding 135k of jobs, while the consensus was referring to adding 140k, after adding 195k in August have been revised down to only 157k yesterday casting doubts the US labor market.

Within the next days, the investors in the US equities market will be in need to detect Fed's direction to considerable ample of easing for stimulating the economy, not just for raising the current clearly muted inflation rate, as it said previously.

The FOMC was not worried about the labor market, the consumption spending or about the recession odds specially over the short term, but it has highlighted its concerns about the investment spending and the exporting activity.

While the global economic slowdown negative effect on the US economy is now tangible and the downside risks of the Trade disputes between US and China are looking taking their toll on the US economic activity and the confidence in it with no clear end of this dispute.

While the most cheerful ones are now just hoping for reaching a partial agreement between US and china or hanging of imposing more tariffs, when their representives are to meet next week, with no hope yet for removing even some of the earlier exchanged imposed levies between the two biggest economies.

The Fed may be in need next to change its language to be more dovish, when the FOMC members are to meet on this Oct. 30, following the Preliminary release of US Q3 GDP.

Earlier this week, Chicago Fed president Charles Evans suggested that the inflation is to rise to 2.2% by 2021 in US even if the Fed refrained from cutting rates further, attributing the downward pressure on inflation to Strong dollar.

The FOMC recent projections release last month have shown also that only 7 of 17 officials saw the need for further 0.25% cut by this year end and there was no forecast for more than one rate cut this year. The Fed's confidence could send UST 10yr yield up to touch 1.90%, before sliding to the current level just below 1.60%.

SP500-daily-03-10-2019 06-37-07 ص.jpg

After S&P500 future rate extended its slide to 2874.64 yesterday, after it had been satisfied to form only a second top at on last Sep. 13 at 3022.64 below last Jul. 26 high at 3027.89.

The index downward momentum accelerated recently, after forming an intermediate resistance at 2993.28 on failure to rise again above 3000 psychological level.

S&P500 future rate is now trading in its ninth consecutive day of being below its daily Parabolic SAR (step 0.02, maximum 0.2) which is reading today 2992.

S&P 500 Future rate is now undermined by diving below its daily SMA50 and its daily SMA100, but it is still underpinned over longer range by keeping its existence above its daily SMA200.

S&P 500 Future daily chart shows that its RSI-14 is now in lower place inside its neutral region at 35.964.
S&P 500 Future daily Stochastic Oscillator (5, 3, 3) which is more sensitive to the volatility is having now its main line inside its oversold area below 20 at 9.153 leading to the downside its signal line which is higher in the neutral area reading 22.073.
After negative crossover inside the neutral region on forming resistance at 2993.28, following a previous negative crossover inside the overbought area above 80 on forming a lower high at 3022.64 on last Sep. 13

Important levels: Daily SMA50 @ 2940, Daily SMA100 @ 2927 and Daily SMA200 @ 2847
Experienced S&R:
S1: 2851.99
S2: 2811.09
S3: 2777.16
R1: 2927.50
R2: 2993.28
R3: 3027.89

Have a good day

Kind Regards

Global Market Strategist of FX-Recommends
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