LiveWire

Stocks fell broadly in morning trading,  extending the market’s losses. Investors are also looking ahead to this week’s Federal Reserve conference for signals about more possible U.S. rate hikes to cool surging inflation. The central bank holds its annual meeting in Jackson Hole, Wyoming on Thursday. Fed Chair Jerome Powell is scheduled to give a speech on Friday morning.

The dollar hit a five-week high versus major peers on Monday morning as investor sentiment continued to weaken ahead of Friday's Jackson Hole meeting and US inflation data (PCE). Fed speakers have been stressing the message last week that more rate hikes are coming, that is despite data showing that inflation is cooling down, but remains hot. There are growing expectations that Fed Chair Powell will announce the end of tightening is still far away. The EURUSD edged closer to parity (1.0001), under pressure as Russia said it will halt gas supplies to Europe for three days at the end of the month. Similarly, European and US stocks are trading around 1% lower.

The S&P500 is seeing some profit-taking with the index edging closer to its technical support on the 50% Fibonacci retracement at 4'231. The 200-day moving average at around 4'325 also acted as significant short-term resistance. It becomes more apparent that the index could trade within this close range in the short term until we hear more about inflation data. Signs of rising energy prices could also dampen the mood, as well as if the quickly rising Covid cases in China spread to major business cities, which is not the case yet. This morning we have eurozone CPI data and in the early afternoon, US jobless claims and manufacturing data should capture traders' attention. 

US stock-index futures fell as concerns over the Federal Reserve’s aggressive rate-hike path outweighed robust corporate earnings and China’s stimulus plans. The dollar and Treasury yields rose.

Investors positioning on S&P500 net non-commercial futures show investors are almost the most bearish since March 2020. Investors have been increasing their bets against the S&P500, just as the index rallied 17% from its lows in mid-June. It is a tug-of-war between investors who believe a recession is imminent and rate hikes will push earnings to come down significantly, and those that believe the Fed will pivot to softer rate hikes, and the economy will manage a soft landing or a growth deceleration without a recession. Markets look near over-bought levels in the short-term but otherwise do not show signs of an imminent double-digit pullback, and investor short positioning supports the view to remain invested.