Stocks drift further ahead of US session

Summary:

• US indices trading lower for 2nd day running

• S&P500 back towards breakout level (2958)

• Kudlow/Powell speeches deliver no great shocks

The Asian and morning European session have seen a little more weakness in equities with stocks continuing to pull back after Monday’s declines. All the US benchmarks are called to begin in the red, for the second day running, although it should be stressed that these declines are still closer in nature to a natural pullback rather than an aggressive sell-off. To put them in perspective the S&P500 futures are trading at 2968 - just 5 points below Friday’s low.

US stocks have drifted lower again but the selling has been fairly contained and for the time being appears to be nothing more than an orderly and natural pullback after the recent break higher. Source: xStation  

As things stand it appears that the S&P500  is retesting the breakout region from which price jumped higher at the beginning of last week. The zone from 2958-2970 could be seen as pivotal going forward, with bulls still in control unless the market can move back below there. In terms of the EMAs, the market has today dipped below the 8 period for the first time this month but remains firmly above the 21 period - as it has been for over a month.  

US stocks remain in breakout territory above the 2958 level with price just pulling back to the 8 EMA in recent trade. Source: xStation 

Fed speak is in focus this afternoon with chair Powell speaking in Boston, however he has failed to touch on monetary policy in what looks at present like a bit of a non event. With the markets already assigning a 100% probability of a Fed rate cut at the end of the month, there is some concern that in light of the better jobs data Powell could adopt a more cautious stance and disappoint. While Powell hasn’t mentioned this so far today he is set to speak again tomorrow at 3PM (BST) and this is something that traders should certainly have on their radar. 

At the same time Economic advisor to the White House Larry Kudlow has been talking at a CNBC event and while he too has not said anything major, there is a little more to go off with his remarks compared to Powell. Selected comments were as follows:

• Fed should look at price indicators not job indicators

• Price level stability and a steady dollar is what the Fed should aim for

• Fed has room to reverse the summer rate hike

• There is no effort to remove Fed’s Powell (WH Conway just also commented that Trump is not firing Powell although he has the power too

• Trump is worried about other currencies being too weak

• Trump is concerned about deliberate currency weakening

The first statement appears to be an attempt to downplay the significance of the recent strong NFP reading while the remarks on currency manipulation show that Trump remains fixated on the strength of the US dollar and clearly still wants a weaker currency.