U.S. EQUITY OUTLOOK:

  • S&P 500 and Nasdaq 100 slide for second straight session, though losses are limited
  • US Treasury yields soar as Fed officials signal their job to curb inflation is not yet complete
  • The ISM Services survey due out Wednesday morning could be a major price action catalyst

Most read: S&P 500 rally could ease monetary conditions and undermine Fed fight

US stocks fell for a second straight day on Tuesday on fragile market sentiment amid rising geopolitical tensions in Asia, after US President Pelosi’s visit to Taiwan sparked anger in China, prompting the communist government to launch missile tests and other military exercises in the region. The sharp rise in US Treasury yields also contributed to the cautious mood, preventing risky assets from resuming their late-July rally.

Ultimately, the S&P 500 fell 0.67% to 4,091, with the real estate sector leading the decline on Wall Street. The Nasdaq 100, for its part, edged down 0.30% to 12,902 after failing to clear key technical resistance near the 13,000 psychological level.

Bond yields rose sharply during the session after several Fed officials, including Mary Daly and Loretta Mester, said the fight against inflation was far from over and there was still work to be done. to rebalance supply and demand in the economy. These statements suggest that policymakers could continue to raise rates aggressively in the medium term, despite growing bets from speculators that the central bank will pivot in 2023 to avoid a major downturn.

Going forward, the current earnings season will remain in focus, but there are also high-impact events worth watching on the US economic calendar in the coming days, including the ISM non-manufacturing and the labor market report.

Focusing on ISM data, the July services PMI, due out on Wednesday, is expected to decline to 53.5 from 55.3 in June, indicating that the recovery continues to weaken. While the overall figure gives an idea of ​​the health of the economy, traders should also pay attention to the inflation component of the survey: the index of prices paid. If this indicator starts to recover quickly in line with recent developments in the manufacturing sector, sentiment could improve despite any slowdown in activity.

NASDAQ 100 TECHNICAL ANALYSIS

The Nasdaq 100 has tested the 13,000 resistance area several times over the past few days, but has yet to break through this hurdle. For sentiment to continue to improve, the tech index needs to breach this technical barrier decisively in the coming sessions. If the breakout scenario materializes, we could see a move towards 13,240, the 38.2% Fibonacci retracement of the November 2021/June 2022 crisis. On more strength, the focus shifts towards 13,550. On the other hand, if sellers resurface and push prices lower, initial support appears at 12,600, followed by 12,250.

NASDAQ 100 TECHNICAL CHART

Nasdaq 100 chart prepared using TradingView

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—Written by Diego Colman, Market Strategist for DailyFX

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