European and US futures are trading lower as traders pick up the momentum they left off yesterday. The sentiment in the market is highly negative as traders and investors are primarily concerned about an economic downturn and soaring inflation. The earnings results from Walmart and Target have made one thing clear for them inflation is such a problem that retail giants like Target are struggling to absorb the shock they created.
Traders think that if multibillion giants like Walmart are struggling to digest higher inflation as they know that they cannot continue to pass higher inflation to consumers, the condition must be dire for medium to smaller businesses who do not have the luxury to take the hit on the chin. They cannot pass higher costs to consumers as consumers are already pushed into the corner, and their disposable income is squeezed to a level we have not seen in nearly forty years. There are also speculations that consumers are utilizing credit to keep up with their living. This again isn’t the best sign because higher debt in a time of looming recession is the perfect cocktail for a major disaster.
Bargain hunters are sitting on the sidelines and watching the situation immensely carefully. There is no doubt that we are likely to see their participation sooner than later. If we look at the price action of the S&P 500, the index declined over 4% and recorded its most significant single drop since 2020. The sell-off intensity was very similar, if not worse, for the Nasdaq 100 index. Yes. The threat of a recession is indeed a real possibility, but at the same time, it is important to understand that the US economy isn’t falling off the cliff. This is because the labour market is still immensely tight, and the recent retail sales data also showed that consumers are still spending.
China, the second-biggest economy globally, has softened its stance towards cracking down the tech companies and the Chinese Central bank; the PBOC is standing ready to provide as much help as it can to soften the blow of the economic downturn. Overall, the looming economic recession is most likely to be short-lived as the hawkish monetary policy adopted by central banks is more likely to tame soaring inflation very soon.
There aren’t many firecrackers on the economic docket today. Nonetheless, traders will look closely at the Philly Fed Manufacturing index, the Unemployment Claims numbers. Both of them are slated to come in at 12:30 GMT, and the forecast is for 14.9 and 200K, respectively. The US Existing Home Sales is due to hit the tape at 14:00, and it is likely to show some weakness due to higher interest rates and a strong possibility of the US interest rate continuing to rise. The forecast for the US Existing Home is 5.65M against the previous reading of 5.77M.
The struggle continues for the digital gold—if you can still call it digital gold. There was a time when bitcoin had a strong correlation with the gold price as it was highly considered a safe haven asset. However, the conflict between Russia and Ukraine has failed to show the confirmation of this trend. Bitcoin has more strong correlation with the stock market, and it has started to rally more in those times when traders favour riskier assets.
In terms of technical price action, the price is struggling once again to find its next direction, and it is highly likely if the current trend continues like this, we are likely to see further downside move from the crypto king than anything else.