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Stocks Pause at Highs
US stocks are softening from the week’s highs as we head into the US open on Tuesday. Following a solid rally off the October lows which saw the S&P gaining more than 12%, the move has stalled into a test of the YTD highs at 4602.90. The shift in trader’s expectations regarding the Fed has been the main driver of the move higher in recent weeks and months. With the Fed now widely expected to hold rates unchanged through year-end before cutting rates early next year, USD has come off considerably. This backdrop has been highly favourable to risk assets.
China Concerns
However, this week, we’ve seen USD recovering some of this lost ground due in part to concerns over the health of the Chinese economy. Further data weakness out of China recently has put fresh focus on the ailing economy. Added to this, a fresh wave of concern over a pneumonia-related viral outbreak in China has further leaned on sentiment towards the world’s second largest economy.
Moody Cuts China Credit Outlook
This week, Moody’s cut China’s sovereign debt rating outlook to negative from stable. The group cited concerns over “structurally and persistently lower medium-term economic growth”. With its credit outlook downgraded, China is now at risk of having its actual credit rating downgraded if the situation doesn’t improve.
US Jobs Data on Friday
Looking ahead this week, traders will be looking to the latest set of US jobs data for a glimpse into the health of the US economy. If we see further weakness on the back of the prior month’s data undershoot, this should drive USD lower near-term allowing stocks room to rise, offsetting concerns from falling employment.
Technical Views
S&P 500
The market is currently stalled at the YTD highs and with momentum studies weakening, risks of a correction lower are growing. 4514.78 will be the key support for bulls to defend in order to keep further upside in focus. If broken, there is room for a much deeper correction down towards 4375 next.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.