Market sentiment on Wall Street continued to de-risk as there was a lack of bullish catalysts, resulting in the DJIA, S&P 500, and Nasdaq all experiencing losses. The absence of positive factors combined with elevated Treasury yields, higher oil prices, and a gridlock in the US government funding bill added to the prevailing risks for the market. Furthermore, the VIX reached its highest level since May 2023, signaling risk-off sentiments. The US dollar also continued its upward trend, supported by slightly hawkish Fedspeak.
Data released revealed downside surprises in US new home sales and consumer confidence, suggesting a moderation in growth conditions. However, it is still uncertain whether these conditions will lead to a recession. The level of US new home sales remains consistent with pre-Covid levels, while consumer confidence has yet to reflect a significant decline that typically precedes a recession.
In the Nasdaq 100 index, sellers gained control as the index broke below an ascending channel pattern, reaching a new three-month low. The failure to defend the Ichimoku cloud support and the 100-day moving average suggests further downside. The next support level to watch is 14,200, which coincides with the weekly Relative Strength Index approaching the critical 50 level. This presents a crucial test for buyers in sustaining the upward trend.
Asian stocks are expected to face another downbeat session, with the Nikkei, ASX, and KOSPI experiencing losses. The Hang Seng Index reached a new nine-month low due to increasing concerns about a potential liquidation of China Evergrande. China’s August industrial profits showed a softer decline, but risks in the property sector persist. In Australia, the Consumer Price Index data matched expectations, indicating that the Reserve Bank of Australia is likely to maintain rates next week. However, there is some uncertainty over the need for additional rate hikes next year, as persistent inflation pressures could lead to more hawkish bets.
The AUD/USD pair has been confined to a ranging pattern, with sellers currently in control. Lingering risks to China’s growth and the overall downbeat risk sentiment are preventing any significant breakouts. A breakout of the range would be significant, with support at the 0.636 level and resistance at 0.650.
Silver prices attempted to bounce off an upward trendline support but failed due to higher bond yields and a stronger US dollar. The daily RSI struggles to surpass the key 50 level, and a breakdown of the US$22.20 level could lead to a retest of the US$20.60 level. On the upside, the recent resistance stands at the US$23.75 level.