By Daniela Sabin Hathorn, senior market analyst at Capital.com
Wall Street lost some momentum on Tuesday after commentary from Fed Chairman Jerome Powell was slightly less constructive than hoped. The reaction seems slightly technical as the commentary still pointed towards future rate cuts, but the bias is so heavily skewed towards ultra dovishness that any shortcomings in commentary can cause a wobble in sentiment. Powell’s lack of confirmation on when the Fed will cut next was the reason for that on Tuesday. Nonetheless, the outlook remains positive with lower expected rates as a tailwind for future valuations.
The key test for sentiment this week will be the August US PCE data, which is forecasted to come in a little hotter than the previous month. The data itself shouldn’t skew expectations of future easing if it stays below 3% but the downside pressure in equities may persist if markets view the reading as an impediment for the path of rate cuts currently priced in. Gold will also be a key market to watch out for as the precious metals nears the 3,800 level with an overbought setup and risk skewed to the downside if the print turns out to be stronger than anticipated.
Nasdaq 100 daily chart
Past performance is not a reliable indicator of future results.
Elsewhere, geopolitics are back on the table as tensions in Eastern Europe escalate once again. On Tuesday, Donald Trump pivoted sharply on Ukraine after meeting Volodymyr Zelenskyy—saying he now believes Ukraine can retake all territory occupied by Russia, a reversal from his earlier suggestions that Kyiv consider concessions for peace. He coupled the rhetoric with tougher talk on Moscow and hints at more pressure, including potential sanctions, but stopped short of announcing concrete new measures. The shift in positioning increases the geopolitical risks which has led oil prices higher, offsetting some of the concerns about sluggish demand.
