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21.08.2023 01:55 PM
US premarket on August 21: US stock market regains some ground

The pre-market session for American stock indices on August 21st saw a modest recovery after the recent dip that occurred last Friday. Futures on the S&P 500 index advanced by 0.3%, while the tech-heavy NASDAQ surged by 0.5%. European stock indices also rebounded from a six-week low, supported by higher energy prices benefitting oil producers like TotalEnergies SA and Shell Plc.

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Yields on Treasury bonds resumed its upward trajectory, rising across the curve. The 10-year bonds reached their highest level since November 2007, and the 30-year government debt neared its peak reached in 2011.

August has been a less profitable month for investors, with the S&P 500 falling by 4.8%. This decline comes as many market participants brace themselves for the possibility of sustained high interest rates in the US. New insights into the Federal Reserve's policy outlook are anticipated in the latter half of the week following the annual meeting of central bank leaders in Jackson Hole. The culmination of the event will be Federal Reserve Chair Jerome Powell's speech scheduled for Friday.

Tensions with China are also dampening demand for risk assets. It was revealed that several Chinese banks lowered the annual credit rate by 10 basis points while maintaining the base rate for five-year loans unchanged. This decision came after policymakers called for credit stimulus last week. Traders had anticipated a reduction of both rates by 15 basis points.

Lately, many market participants have expressed dissatisfaction with China's cautious approach to stimuli, particularly in addressing consumer credit accessibility. Pictet Asset Management suggests that the only thing currently preventing a major market sell-off is investors' hope for a dovish stance from the Federal Reserve. However, the risk lies in the potential resurgence of inflationary pressure due to high consumer spending and wage growth. When Powell speaks on Friday, using a more balanced tone in his statements, demand for risk assets is expected to return as the likelihood of an end to tightening cycles becomes more probable than ever before. "The Fed have done almost everything they need to do to get inflation down to target and it would surprise me if there was a lot more rate rises to come," David Henry, investment manager at Quilter Cheviot, said.

In the energy markets, European gas prices have risen by 18%, as traders assess the possibility of supply disruptions due to potential strikes in Australia. Oil prices continue to climb, with signs of tightening in the physical market offsetting growing demand risks in China and the US. Brent is trading above $85 per barrel, rising by over 2%.

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As for the S&P 500, demand for the index has returned. However, bulls face slim chances of a correction. They need to regain control at $4,405, pushing the price higher to $4,427. Bulls also should settle the price above $4,447 to cancel the bearish trend. In the event of further downward movement amid waning risk appetite, bulls will have to protect $4,382. A breakthrough of this level may quickly push the trading instrument back to $4,357, opening the path to $4,332.

Jakub Novak,
Analytical expert of InstaForex
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