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Market sentiment improved further in the first half of Tuesday’s session following Monday’s tech-fuelled stock market rally. Nasdaq and other US index futures gained ground along with European indices. But with China concerns still on many investors’ minds and big risk events to come later in the week, volatility could return. 

Monday’s recovery was partly driven by the 8% rise in Nvidia shares (NVDA), which helped to lift sentiment in the sector. Tech stocks had fallen sharply over the last three weeks, owing to concerns over Chinese demand and overstretched valuations amid big gains in bond yields, making government debt more attractive than many of the growth stocks found in the tech sector.

For the same reason, gold has been out of favor, although the yellow metal has also regained some ground as yields have eased back a little after the 10-year yield broke the 2022 high on Monday at 4.335% to reach their highest level since late 2007. The XAUUSD could face resistance around the $1900 area. 

All eyes on Jackson Hole Symposium 

The focus will turn to Fed Chair Jerome Powell’s highly anticipated speech on Friday at the Jackson Hole Economic Policy Symposium.

In recent years, central bank officials have used the Jackson Hole summit to signal major policy shifts. This year’s event will be held on 24 to 26 August. Many central banks are looking to pivot away from policy tightening. The Fed, ECB and BoE are all nearing the end of their rate hiking cycles if they haven’t already. But given upside risks to inflation, the likes of Powell, Lagarde and Bailey will probably signal intention to remain flexible and data dependent.

Indeed, Powell is unlikely to change his tone much, given that economic data has remained surprisingly strong in recent times, and supporting the case for a soft- rather than a hard-landing. With the Fed unlikely to cut interest rates any time soon, yields are likely to remain underpinned which could keep good and techs stocks undermined moving forward.

Historically, stocks have tended to rally on the back of speeches from Fed chiefs at the Jackson Hole summits. But last year it was a different story as stocks fell sharply in the week following Powell’s remarks after he warned of keeping policy restrictive for longer, which turned out to be the case. 

Manufacturing PMIs could raise recession alarm bells

Meanwhile on the economic calendar and ahead of Powell’s speech, the focus will return to the economy on Wednesday, with the publication of the latest global PMIs. Concerns over the health of the global economy intensified last week with the release of soft Chinese industrial data. This week, the focus will be on manufacturing PMI data from around the world, including the Eurozone, UK and US. Activity in the sector has been deteriorating, across all regions. Another disappointing set of PMI numbers could raise recession alarm bells.

It is also worth keeping an eye on offshore yuan after the People’s Bank of China implemented the strongest fixing on record on the currency. Yet the USD/CNH has bounced and holding near recent highs, highlighting the fact that the battle to prop up the yuan is not an easy task while you are simultaneously loosening monetary policy.

S&P 500 technical analysis

(Click on image to enlarge)

With the S&P 500 being on its third up day, the bearish momentum has clearly been lost although it doesn’t mean it is all clear for the bulls. They must reclaim further broken levels to completely regain control.

The bears will want to see resistance hold around the current levels around 4420 to 4450. A weak close is what they will be eying today ahead of those big macro events later this week. A move below 4390 could ignite fresh selling.

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