US Open – Red Flags Appearing on Wall Street

US Futures Higher Ahead of the Open

Wall Street achieved new record highs on Tuesday but it wasn’t plain sailing, with sentiment shifting shortly after as stock markets ended the day in negative territory.

The result is an interesting technical setup in US indices, with the outside day on the S&P 500 widely viewed as a bearish signal. This comes as the Dow falters just above 28,000 and leaves a bearish looking setup and the Nasdaq ended lower for a third consecutive session. Red flags everywhere which makes today’s session all-the-more intriguing.

US futures are back in positive territory, up almost 1%, which could be an encouraging sign but it may not be that simple. We need to see a fresh high in the S&P and Dow today and, ideally, an end to the Nasdaq losing streak, to shore up confidence. That may seem a little dramatic but with US yields spiking the last couple of days and delivering a sledgehammer blow to precious metals in the process, reassurance is what investors now need.

UK in worst recession on record, but it’s not all bad

The UK is officially in its worst recession on record, as the economy shrunk by 20.4% in the second quarter, broadly in line with expectations. While there is some cause for optimism, being the 8.7% monthly rebound in June as shops reopened, the economy remains a sixth smaller than in February, highlighting the scale of the job ahead.

The market reaction was predictably muted, with the horrific GDP figure widely expected and, in many ways, outdated. It’s one for the history books and today’s headlines but as far as markets are concerned, a lot has happened since then in this ever-evolving crisis. The number was in line with expectations so there’s not much to respond to.

Rising yields pull the rug from underneath precious metals

The rise in US yields delivered a sledgehammer blow to precious metal markets on Tuesday, with gold falling 5% and silver taking a massive 15% hit. The rally over the summer has come as US real yields have gone negative and continued to decline so the sudden spike over the last couple of days triggered a rush for the exits in what has become an incredibly overcrowded trade.

The smashing of major psychological support along the way likely did little to soften the blow. The rise in yields has been attributed to a slew of upcoming auctions and higher PPI numbers so beware the CPI data today. Support in gold can now be seen at yesterdays low around $1,860 and then $1,800-1,820. Silver could see an interesting test around the $22-23 region.

Crude at risk of being dragged lower again

Crude continues to trade around the upper end of its range, with Tuesday’s inventory draw from API giving prices another lift. The 4.4 million drop exceeds expectations for EIA today, with a more modest 3.2 million barrel draw forecast. Ultimately, it may be overall market sentiment that dictates today’s moves, as it did for much of yesterday. The red flags are appearing in equity markets, another wobble today could drag oil prices down with them.

Economic Calendar

For a look at all of today’s economic events, check out our economic calendar.

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Craig Erlam

Craig Erlam

Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.
Craig Erlam