US500 loses 2.5% 📉

📌 Weak NFP report pressures Wall Street as recessionary fears rise; tech stocks retreat and EURUSD jumps above 1.09

Today's macroeconomic data raised strong investor concerns and lowered the probability of a soft landing scenario. Slower growth in the labour market, weaker orders, a rise in the unemployment rate and lower wage growth all add up to a picture of a worrisome slowdown. In the effect, S&P 500 futures (US500) are losing more than 2.5% today.

• It looks as if the U.S. economy is beginning to feel the ongoing environment of higher interest rates more and more strongly, and in such an environment, a decision to cut interest rates may no longer signal a pro-growth signal for U.S. indices at all. 
• Futures are pricing in more than 110bp cuts in 2024; the market sees a near 90% probability of a 50bp Fed rate cut, at its September meeting. U.S. bond yields are down around 3.8%, and EURUSD is trading with a strong rebound of 1.1% to 1,091.
• Citigroup analysts forecast 125 bps in Fed cuts this year after today NFP data, 50 bps in September and December. Goldman Sachs added a third quarter-point Fed cut to previous 2024 Fed interest rate cuts forecast
• Against the backdrop of an economic slowdown and rising unemployment, valuations of U.S. companies still appear challenging. As a result, if optimism and consumer spending slow down in the second part of the year, the stocks of procyclical companies may record a weaker period. 
• A strong sell-off is seen steadily in the semiconductor sector, with Nvidia shares approaching the psychological support of $100 per share and retreating 5% today, following reports of an antitrust investigation by the U.S. Department of Justice.
• Also, Amazon (AMZN.US) shares are down more than 10% today, as the company reported lower than expected revenues and issued guidance, which fuelled uncertainty. Intel (INTC.US) drops almost 29% today, to the lowest levels since 2013 amid weaker than expected Q2 report and weak guidance. The company pointed out 15 000 jobs cut 

The Wall Street upward trend so far have been based on the assumption of interest rate cuts in a still-strong economy, which would allow U.S. companies to emerge from a high interest rate environment without a marked slowdown. Under such a scenario, impending interest rate cuts were received optimistically by the market, adding to the rises driven by the bull market in technology companies. 

However, given the weak labor market data (lowest NFP employment change since 2021, claims close to 250,000, unemployment rising to 4.3%), investors are beginning to fear that the Fed is de facto already overdue for monetary easing. If this happens, the market trends that accompanied previous cycles of reductions could repeat themselves. The economic slowdown reflected in the performance of companies caused indexes to record discounts as monetary policy eased. 

US500 and EURUSD

The sell-off on the US500 is accelerating, with the Relative Strength Index (RSI) on the hourly interval indicating levels close to capitulation and oversold (19 points). Over the past few sessions, selling volume has prevailed.

Source: xStation5

The rally on the EURUSD pair is the highest strengthening of the euro against the dollar since November 2023. The earlier surge in the US currency resulted in an upward trend on the pair, which reached another 1.16% rise. In the event of a repetition of such a scenario, the range of a potential breakout would mean that quotes would approach the area of 1.10556, which is close to the peaks of late 2023. For the time being, however, the quotes face resistance set by this year's peaks near the 1.09408 level. 

Source: xStation5