US stocks near key resistance; Yields gain on George's comments

Summary:

• Nasdaq within striking distance of 7790 resistance

• Fed’s George delivers hawkish remarks 

• Market await key Powel speech 

Wall Street is set to open not far from where it ended Wednesday’s session with benchmarks continuing to probe potentially key resistance level. The low 2940s has provided a ceiling to recent attempts for the S&P500 to rally and this remains a potentially pivotal region to watch. Yesterday we mentioned the volatility index (VOLX on xStation) and how this can be utilised for indices traders focused on the S&P500 and today we’ll look at another market which can provide some insight into the general mood of the market - the US 10-year bond (TNOTE on xStation).

The TNOTE trades in a similar fashion to the VOLX when it comes to broad risk-on or risk-off moves with both falling in the former environment and rising in the latter. The TNOTE has broken down to its lowest level in over a week in recent trade and could be seen to suggest an improvement in risk sentiment. Source: xStation

The main reason for this decline has been comments from Fed member George in which the president for Kansas City struck a fairly hawkish tone - the TNOTE trades inversely to interest rates and therefore falling prices represent higher yields. Selected comments from George were as follows (emphasis is our own) :    

• Not the time for accommodation

• Labour market remains strong

• Still sees higher wages

• Would be happy to leave rates where they are now

In particular this last remark is hawkish and given the market is fully discounting a 25 basis point cut at the next meeting, with a small chance of a 50 basis point one, there is a suggestion that the current pricing is a little too dovish. Finally it is worth pointing out the declines in the TNOTE caused by hawkish remarks are not anywhere near as supportive as declines that have come from improved sentiment - in fact they are likely negative for stocks. For instance, if Powell strikes a hawkish tone, or at least a less dovish one, tomorrow then we will likely see declines in both the TNOTE and US stocks.  

Of course these latest comments pale into insignificance compared to Powell’s Jackson Hole speech - an event that is not only the highlight of the week but could well be the biggest of the month. Read our full preview of the event here.

The Nasdaq 100 (US100 on xStation) is often the most volatile of the large cap US indices and therefore can be seen to lead the way. Out of the 3 major benchmarks the chart here is the most positive for bulls, with yesterday’s session seeing a close back above the 21 EMA. The 8 EMA is also rising and could be on the verge of a bullish print if there’s much more upside in the coming sessions. 7790 could be seen as a key resistance with a break and close above there further supporting the case for the trend to have turned higher once more. Source: xStation