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19.07.2023 02:28 PM
US premarket on July 19: Stock market rally continues

US stock index futures have only slightly corrected after the recent rally that occurred in anticipation of the inflation crisis ending, which is affecting nearly all developed economies worldwide. S&P 500 futures are trading near the zero mark, while NASDAQ has gained about 0.2%. A positive corporate earnings season is benefiting risk assets, including stocks, and negatively impacting bond market yields, leading to its growth.

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Today's inflation report in the UK provides further evidence that central banks may ease their high-interest rate policies soon. According to the Office for National Statistics, the UK's Consumer Price Index stood at 7.9% compared to the same period last year, sharply down from 8.7% in May.

European stocks are also mostly in the positive territory: the UK's FTSE 100 index rose by almost 2% after a reduction in price pressure in the UK. Shares of British construction companies surged by 7.2%, reaching the highest level since 2008. UK's two-year government bond yields dropped more than 20 basis points, the fastest decline since March. The pound fell below $1.30, and yields on Treasury bonds decreased across the curve.

As mentioned earlier, while European inflation did not surprise significantly, aligning with economists' forecasts, the UK inflation news has boosted investors' hopes that the tightening of monetary policy is coming to an end, positively impacting demand for risk assets. This injects some financial market optimism. If this trend continues until the end of summer, central bank meetings in the fall could be eventful.

Goldman Sachs Group Inc. shares fluctuated in the premarket after the Wall Street giant reported one of its weakest quarters. Netflix Inc. and Tesla will report their earnings soon.

In Asia, stocks showed the worst performance on Wednesday, while the offshore yuan fell to its lowest level in over a week. Investors seem uncertain about finding an easy solution to China's economic slowdown, given signs of financial stress among dollar bond issuers in the country. Economists anticipate that Beijing's consumption stimulation plan may not significantly contribute to the economic recovery. But all eyes are on the end of the month when the Politburo will publish its plan.

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Oil continues to recover due to the weakness of the US dollar and reduced price pressure. Gold is also aiming for $2,000 as many economists expect a real easing of restrictions by central banks.

Regarding the S&P 500 index, the demand for the trading instrument remains strong. Bulls have a chance to continue the uptrend, but they need to firmly settle the price above $4,567. If they succeed, they may push the index higher to $4,589. An equally important task for bulls will be to control $4,637, which will strengthen the bull market. In case of a downward movement amid a decreased risk appetite, bulls should protect $4,539. A breakthrough will quickly push the trading instrument back to $4,515 and pave the way to $4,488.

Jakub Novak,
Analytical expert of InstaForex
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