Overnight on Wall Street, shares were hit by concerns over slowing growth and inflation fears.
The S&P 500 fell over 1% on Wednesday, snapping a two-day winning streak as Treasury yields rose back above the psychological 3% level and oil prices rallied. Caution is likely to remain the name of the game as investors adopt a guarded approach ahead of the European Central Bank meeting on Thursday afternoon and the US inflation report at the end of the week. With the lack of appetite for risk sending market players away from equities, the S&P 500 could resume its decline – especially if 4200 proves to be reliable resistance.
In regards to the ECB, it is not expected to raise interest rates this month. However, the central bank is poised to signal a hike in July as euro area inflation hit another record high in May. On Friday, the US inflation report is expected to show consumer prices rising by 8.2% in May, compared to the 8.3% seen in April. If the report meets or falls below expectations, this may suggest that US inflation may have peaked. Such a development could fuel speculation around the Fed taking a step back from its ultra-aggressive stance – offering US equity bulls some room to bounce back.
Focusing on the technical standpoint, prices remain stuck within a range on the daily charts with support around 4100 and resistance at 4200. Despite the sharp rebound almost three weeks ago, the trend still favours bears with prices trading below the 50, 100, and 200-day Simple Moving Average. A strong daily close below 4100 could trigger a decline towards 3975 and 3810.9, respectively. Should 4100 prove to be reliable support, prices could rebound back towards 4200 which may open a path higher towards 4313.