US and European futures are picking up where they left off yesterday. Traders have been hoping after the recent rally in the US stock indices that they will finally get to see the end of the bear market. However, the price action in the last week told us a different story. The bear market has a long way to go. This is because we are still hearing more adverse news in terms of companies laying off staff or announcing more job cuts. In addition to this, yesterday, most of the bank’s CEOs, including Goldman Sachs and JP Morgan’s CEO, came out with a more cautionary tone and warned about the potential of the recession taking place in 2023.
However, one major fundamental that can change the sentiment in the market is China’s covid related policies. Traders have been looking for more positive news when it comes to China’s zero-tolerance covid policies. Today, we have heard from the officials about a further easing of those measures, and this provided support for investor sentiment in Asia. The spillover of this sentiment is likely to take place in Europe and in the US, as China is the second biggest economy in the world. The covid related restrictions in China created bottleneck issues with respect to the supply chain, and also global economic growth had more adverse influence. The easing of covid related policies is important for the market players, and they are likely to overlook the issues of jobs warnings or cautionary tones from US corporate CEOs as everything is pinned to supply and demand.
Over in Asia, The Reserve Bank of India once again raised the interest rate in line with the market expectation by 35 basis points. Now the benchmark interest rate in India sits at 6.25%. The Nikkei 225 index moved away from its lows of the day on the back of China’s covid policy news. The Topix index traded mostly flat at the time of writing this research report. The South Korean index Kospi soared 0.36%, while the Australian ASX 200 index fell 0.85%.
As for Wall Street, The S&P 500 recorded more losses yesterday and closed lower by 1.44% or at 3,941.26, while the Nasdaq Composite plunged by 2% to finish at 11,014.89. The Dow Jones Industrial Average dropped 350.76 points, or 1.03%, to settle at 33,596.34. In terms of market breadth, the S&P 500 has more than 400 stocks that are trading lower for the second consecutive day. This is the first time that we have seen the index’s breadth performing so adversely since June 13.
Oil prices saw a serious correction yesterday. The prices of Crude and Brent oil have been falling for the past two consecutive days. Oil prices are still very much linked to demand, and the fact that every day we hear more possibilities of a recession taking place in 2023 is not great for oil prices. We know that OPEC has decided to lower oil production, but no aggressive supply cut decision has been made by the influencial oil alliance so far. Hence traders are more worried that with growth slowing down, there are more possibilities that we may see an oil supply glut forming as the US oil drillers are still pumping at a record pace. In addition, it would help if China completely eased off its zero-covid policy stance; without China, oil demand is unlikely to visit the same demand level that we had pre-covid. In addition, traders need to keep in mind that artificial factors mainly drove the recent rise in oil prices. The real price of crude is more likely to be in the range of $65 to $75. This is where the price is trying to find a new consolidation range.