Equity Markets Rebound as the Bulls Push Back: S&P500 and NAS100 Rally to Session Highs

The rotation into more defensive positioning on Friday has not been forgotten and was significant to the point that market players have the August US nonfarm payrolls print (released on 5 Sept) as a strong volatility event to manage - however, while we look ahead to the US ISM services print in the session ahead, the totality of the US economic data this week seems unlikely to trouble risk to any great extent, and US interest rate swaps already imply a 25bp cut by the Fed in September at almost a done deal. 

Some will point out that we’ve seen concerns on the US labour market kick over the past 2 years, and notably in the June-August 2024 period, with consecutive sub-100k NFP prints, and when the Sahm rule triggered – however, after a period of darkness, the US labour market recovered soon enough. Subsequently, some will be hesitant to position for a sustained labour market slowdown given the prior false starts, while others will see a heightened risk that this time could well be different, and we may get a period of sustained sub-100k payrolls, and we’re almost certain to see further massive revisions to prior payrolls prints. 

However, the evidence we’re seeing from layoff rates and claims is that the unemployment rate looks unlikely to rise at any alarming rate…

S&P and NAS100 futures failed to attract follow-through selling on the futures re-open, and perhaps that was in itself a significant signal, with the buying activity gradually building through EU trade and through the US equity pre-market session. I had specifically looked at the 16 July low of 6241 (S&P500 futures) as a key support level that needed to hold, as a closing break down through here would have likely increased the need to deleverage, increase portfolio hedges and raise cash levels – but on the day these prior lows have not come into play, and It’s clear from the intraday price action that the buyers really stepped up at the US cash equity open, with futures volumes practicably increasing, and traders reducing volatility bets, with the VIX futures offered from 19%, with traders turning buyers of Nvidia, Tesla and Apple short-dated upside calls. 

We must be open-minded to where the collective wants to take the market from here. Friday’s trading session won’t have been forgotten, and the equity bulls will still want to see a push through Friday’s high of 6373.50 and 23,347 (NAS100 futures) to get the upside case humming along once more. Breadth on the day and participation have also been solid, with 86% of S&P500 companies closing in the green, with tech, comms services and utilities leading the index higher. 

A calming in the US Treasury market was also evident, with yields across the curve lower by 1-2bp, perhaps reflecting a pause for breath after the 3 standard deviation reduction in yield on Friday, as well as reflecting the limited data on display through the session. The July US ISM services is due in the session ahead, perhaps the marquee data risk of the week, with economists expecting an improvement in the July reading, with the index eyed at 51.5 (from 50.8), where one can assume the employment sub-index will get increased focus. 

The USD index was largely unchanged on the day, reflecting the limited movement in EURUSD, with EURUSD holding below 1.1600, USDJPY contained within channel support at 147.00, and GBPUSD failing to fire through 1.3300. USD buyers have seen the upside easier to come by vs the CHF, with the CHF the weak link in G10 FX.

Turning to the Asia open, our opening calls for the respective equity opens looks constructive for Australia and Japan, and for those who refrained from reducing their equity risk yesterday and kept their equity exposure in check will be rewarded with the ASX200 called up 1% for the open, and gunning for the ATH of 8776 in the cash (8751 SPI futures). 

We won’t see those lofty levels breached on the open, but we look and react to the flows through the market after the auction unwind, and consider whether the buyers step up and drive the index further higher, or conversely use the opening strength for exit liquidity – with FY2025 earnings set to beef up, bottom-up factors will play an increasing role in the variance of the index and notably on 13 August when CBA report. 

Good luck to all.