Where we are: S&P 500 futures are trading down 1.48% at 7429.50, extending the overnight weakness seen across Asian and European markets. The cash index is currently off 0.37% at 7472.79. We’re seeing a clear risk-off tone, with tech names leading the decline, and the VIX is elevated at 19.93. The immediate overhead resistance is the prior NY close around 7500, with support at the 7400 handle.
What’s driving it: The primary driver remains the ongoing reassessment of AI spending and its sustainability, which is hitting tech giants and chipmakers hard. This narrative is amplified by a strengthening dollar, as evidenced by the Fed TWI’s rise, and elevated US Treasury yields, which are refusing to budge despite some energy price weakness. Waller’s remarks yesterday, while focused on the dollar’s international role, did little to shift the market’s focus away from the Fed’s higher-for-longer stance, keeping a lid on risk assets.
- Fed Governor Waller’s speech on the international role of the dollar, offering no dovish signals.
- US 10Y real yields are ticking lower to 2.21%, a slight tailwind for gold but not enough to offset broader equity weakness.
- Speculative positioning in S&P 500 futures remains heavily net short, suggesting significant squeeze potential on any positive data surprise.
NY session focus: The key event risk this afternoon is the release of the Flash Manufacturing and Services PMIs at 09:45 ET. We’re looking for a slight dip in manufacturing to 54.6, but a tick up in services to 51.1. A print significantly below expectations would exacerbate the current risk-off sentiment, pushing S&P futures lower towards 7350. Conversely, a strong services number could offer a brief reprieve, potentially testing the 7450-7475 area. The pain trade here is a sharp downside break on a weak PMI, catching the crowded short positioning off guard.