US equities fall over as recession risks increase

ISM Services were weaker than expected, hitting sentiment

• US ISM fell to 51.2: This was lower than forecast and implies a deteriorating growth outlook.
• Negative sentiment is growing: Growing concerns over recession risks are impacting risk appetite.
• USD and JPY are performing well today: The safe haven currencies are outperforming major forex 
• Profit-taking on equities: The recent rebound in equity markets is pulling lower, with European indices cautious and US futures having dropped overnight
• Rallies on metals and oil are unwinding: In commodities, gold and silver are lower, whilst oil has also drifted off.

Disappointing ISM Services weighs on US growth outlook

The ISM Services PMI fell decisively in March.

The survey fell to 51.2 from 55.1 in February. This was much worse than the mild retreat to 54.5 that had been forecast by the market consensus.

This also follows the further deterioration in the US ISM Manufacturing PMI earlier in the week.

With the survey covering the period of the banking crisis in the US, this serves as a warning to policymakers at the Federal Reserve and firms expectations that the FOMC will likely pause interest rate hikes in May.

The CME Group FedWatch tool suggests only a 44% probability of a hike to interest rates in May. 

The negative implications for US growth

Deteriorations in both the ISM Manufacturing and Services PMIs suggest a slowdown in US economic activity.

The manufacturing survey is decisively in contraction territory at 46.3, whilst services is only showing minimal growth a shade above 50, at 51.2. 

Regional Fed surveys reflect the downbeat prospects for US growth too, remaining consistently in negative territory below zero.

The Atlanta Fed’s GDPNow estimate for Q1 GDP has nosedived in the past couple of weeks.

The reading has fallen to 1.5% annualised GDP growth for the first quarter.

This is also a two-month low.

A negative risk bias is starting to pull equities lower

Equities have been remarkably positive in recent weeks, but the negative readings on the ISM data has started to weigh. 

The potential for a period of profit-taking has increased.

For the US, we see the S&P 500 futures pulling lower whilst the growth-weighted NASDAQ 100 futures seem to be driving the move.

This reflects a shift to a more risk-negative bias in market sentiment.

US equities pulling lower

A near-term correction is threatening equity markets. 

NASDAQ 100 futures (NAS100ft)

As a rally has just begun to look tired, the futures have pulled lower in the past couple of sessions.

Hitting resistance at 13347 the market has unwound.

• A test of a 290 tick support band between 12790/13080 is now underway.
• The daily RSI is unwinding from 70, however, a move below 60 would be a warning of a deeper unwind.

For now, the outlook remains positive but a move below 12633 would turn the outlook more corrective within the recovery uptrend channel.

S&P 500 futures (SP500ft)

The futures recently rallied towards the top of the medium-term trading range.

However, there is a key band of around 60 ticks of resistance between 4145/4208 that has restricted rallies since September. 

Once more, the move higher is hitting the buffers of resistance and is starting to pull back lower again.

• Monday’s high of 4170 came under the key February highs between 4185/4208.
• The daily RSI has again faltered around 60, which is a classic sign of a continuing medium-term trading range.

The reaction to a three-week uptrend will be watched now.

Also if the RSI drops back under 50 this would be a sign of a continued pullback. 

Initial support is at 4060/4080, with 3937 a key mid-range support.

Support and resistance levels for Forex, Commodities, and Futures/Indices 

Data: MT5/IXOne

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