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US Session: Mixed Performance in Premarket and Uncertainty Among Traders

Mixed Performance for U.S. Futures on Monday as Investors Assess the Impact of Federal Reserve Policy Easing Following Chair Jerome Powell’s Hawkish Tone

Just before the opening, S&P 500 futures are up by 0.15%, Nasdaq 100 is down by 0.11%, and Dow Jones is up by 0.16%, after all three indices recorded gains of over 1% on Friday. Expectations for lower borrowing costs in the U.S. have spread across financial markets following Powell’s statement that “the time has come” for a shift towards easing monetary policy. This effectively solidifies the case for a rate cut next month, but the debate is now around the size of the reduction and what it would mean for the state of the economy. Traders have added bets for a half-point rate cut in September—yet such a cut might signal that the economy is heading towards a hard landing, which would limit stock demand. Orders for durable and capital goods, excluding transportation equipment like airplanes, fell more than economists had expected in July, according to Monday’s data. A faster rate cut would also imply that the economy isn’t performing as well. A 50-basis-point reduction would reflect weaker data seen at the end of July, which somewhat unsettled the market.

Fears of Escalation in the Middle East Conflict Prompt Safe-Haven Asset Purchases

Following an Israeli strike on Hezbollah targets in southern Lebanon, there has been some buying of safe-haven assets. The dollar index has slightly risen after marking its largest decline in nine months on Friday, while the yield on 10-year U.S. Treasury bonds remains stable. The yen has appreciated for a second day to its strongest level since January. Crude oil prices are up nearly 3% due to concerns over supply disruptions as a result of the conflict and after the eastern Libyan government announced it would halt exports. Traders are also awaiting Nvidia Corp.’s earnings report on Wednesday, which may show whether the enthusiasm for artificial intelligence is justified. The tech giant is up about 0.15% in pre-market trading. The Stoxx Europe 600 index remains nearly unchanged, with trading volume at less than half the average level as UK markets are closed for a holiday. Germany’s business outlook remains at its lowest level since February, underscoring the pessimism that has once again enveloped Europe’s largest economy after the early-year recovery has run its course.

Potential Assistance Regarding Interest Rates

Some relief might come regarding interest rates. After first lowering borrowing costs in June, the European Central Bank has signaled that a new move in September is likely. Elsewhere, the People’s Bank of China has kept its one-year loan prime rate, or medium-term lending facility, at 2.3% after cutting the rate by 20 basis points in July. The decision highlights Beijing’s cautious approach to supporting the economy even as China reported a rare contraction in bank loans amid weak demand. In recent months, the PBOC has balanced between stimulating growth and cooling government bond purchases to limit financial risks. In the commodities market, iron ore continues its recovery as China’s massive inventories of the material continue to deplete, signaling that the period of severe supply may be easing. Gold is trading just below its all-time high levels of $2,525 per ounce.

Technical Picture: S&P 500 Futures Daily

I expect today’s session to test the horizontal resistance around $5,685. If the price breaks above this level, it will likely head towards testing the all-time high levels around $5,720.

Alternatively:

A break below the horizontal support around $5,630 would likely lead the price towards testing the diagonal support around $5,610.

S&P 500 Futures Daily

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