US Stock Market Highlights:

• TheS&P500Dow and Nasdaq 100 continue to fall amid global recession fears stemming from tighter financial conditions
• Initial jobless claims end two-month decline, hitting highest level since last week of August
• All eyes are on tomorrow’s NFP report

Most read: NFP and Forex: What is NFP and how to trade it?

yesterday the risk aversion sentiment continued into today’s trading session. After last quarter’s rebalancing flows, investors have refocused their attention on the fundamentals of the economy, where the overall outlook for risky assets remains bleak. Steady levels of inflation are putting upward pressure on interest rates while supporting the strength of the US dollar.

For the second day in a row, US Treasury yields rose for both short and long maturities. The two-year yield, which is the most sensitive to changes in monetary policy, rose to 4.24%, while the 10-year note jumped to 3.82%. While Atlanta Fed President said today that he expects rates to be 4.0-4.5% by the end of the year, Minneapolis Fed President Kashkari, mentioned that cracks could be seen in financial markets as the central bank shifts to a higher interest rate regime.

The comments raised doubts about financial stability and a global recession induced by tighter monetary policy. Earlier in the week, the health of Switzerland’s second-largest bank, Credit Suisse, came into question amid a lower profile compared to its European investment banking peers. The IMF today said the risks of a global recession are on the rise and countries accounting for a third of global GDP are set to experience two consecutive quarters of decline, either this year or the next.

In this uncertain environment, the beneficiary continues to be king of the US dollar as investors seek safe-haven assets, undermining demand for equities.

At the close, the Dow Jones and S&P 500 lost 1.15% and 1.03% respectively, despite weekly jobless claims hitting their highest level since the last week of August. And while there was some consolidation ahead of tomorrow’s jobs numbers, ten of eleven S&P sectors posted declines. News that General Electric (GE), in the industrial sector, is laying off 20% of its onshore wind power workforce kept sentiment depressed.

On the other hand, the energy sector is the only component that progressed. Crude oil prices are near a three-week high after OPEC+ decided to cut supply by 2 million bpd on a quota basis. Companies such as Chevron have posted gains driven by rumors that the US administration may consider lifting sanctions that would allow them to pump oil into Venezuela to ease fuel price pressures amid the decision to OPEC+.

Finally, on the technology front, the Nasdaq 100 also posted losses. At the close, the benchmark was down 0.76%. News that Google introduced its first smartwatch and new phone releases had little effect on the index.

TECHNICAL PERSPECTIVES

From a technical perspective, despite the S&P 500 opening lower, the bulls attempted to breach the key resistance zone of 3805-3807, where the 38.2% Fibonacci level converges. To the advantage of the bears, the bulls failed as some consolidation was seen ahead of tomorrow’s economic data release. Fundamentals, risk sentiment and moving averages seem to point to a continuation of the medium-term downtrend, absent a significant change in market momentum. Keep an eye out for 3733 as this is a key support level. If this zone is breached, we cannot rule out a move towards 3660, a previous resistance level.

S&P 500 Mini Futures Daily Chart (ES1)

S&P 500 Mini Futures Chart. Prepared with TradingView

Looking ahead, tomorrow’s September NFP data will be closely watched. As a key indicator of the Fed’s monetary policy and, by extension, the strength of the dollar, investors are watching this number closely. Markets are expecting an increase of 265,000 jobs, compared to 315,000 in August.

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—Written by Cecilia Sanchez-Corona, Research Team, DailyFX