US equity markets are expected to open a little lower on Friday, building on small losses on Thursday with indices still looking vulnerable to sharp declines even as earnings continue to surpass expectations.
Once again it seems any rally off the lows in US indices doesn’t have the legs to go beyond the previous highs which is worrying as we get ever closer to the second rate hike in a decade and the first this year. Having held on a couple of occasions so far, it will be interesting to see whether the next test will see 18,000 in the Dow and 2,115 in the S&P will result in a significant break of an important support level that could prompt a much greater move to the downside.
We may have to wait a little longer for that though with today looking a little light in terms of potential catalysts. There is no economic data due from the US today and only 10 companies are reporting earnings for the third quarter.
We will hear from two Fed officials though, which given that the market pricing in a hike for December is probably one of the key reasons for equities looking over extended, could be key. As it is, a December hike is 74% priced in by the markets, based on the implied probability from Fed Funds futures.
Source – CME Group FedWatch Tool
Daniel Tarullo has been one of the more dovish voices on the FOMC this year, last month claiming that he wants to see more evidence of inflation moving towards 2%, although he did concede that a rate hike this year is a possibility. Should he move more in line with the more hawkish policy makers in the camp today, as a voting member of the FOMC that didn’t dissent at the last meeting, it would send a strong message that a December hike is very much on track. We’ll also hear from John Williams who isn’t an FOMC voter until 2018.
For a look at all of today’s economic events, check out our economic calendar.
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