Rout in FTSE 100, DAX 40 and S&P 500 continues

​​FTSE 100 continues its descent

The FTSE 100's decline on the back of higher-than-expected US CPI data on Tuesday, which made investors fear that the Federal Reserve (Fed) will need to pursue a more aggressive tightening policy to combat inflation, is ongoing.

The decline in UK retail sales, the biggest so far this year with a drop of 1.6% month-on-month in August following a 0.4% rise in July, should also exert downside pressure on the UK stock market. The data came in much worse than an expected 0.5% drop, with rising cost of living prices weighing on consumer spending.

The index topped out at 7,515 on Tuesday when it formed a bearish engulfing pattern on the daily candlestick chart and so far tumbled to its breached one-month resistance line at 7,228. A slide through this level would push the 8 September low at 7,174 and also the 1 September trough at 7,131 to the fore.

Today minor support may be found along the breached one-month resistance line, now because of inverse polarity support line, at 7,231 while resistance comes in between the 6 September high at 7,325 and the 55-day simple moving average (SMA) at 7,344 ahead of the 200-day SMA at 7,402.

DAX descent has further to go

The DAX 40’s swift sell-off from Tuesday’s 13,570 high has further to go as the index follows US and Asian markets lower and as the IMF downgrades its growth forecast for 2023 and the World Bank warned of a global recession next year, prompted by the wave of tightening central banks.

The index formed a bearish reversal candle on Tuesday and is now trading below its September support line at 12,870 with the early September lows at 12,688 to 12,596 being in focus. Failure there would engage the July lows at 12,432 to 12,386.

Good resistance can now be found between the 2 September high and the 55-day SMA at 13,057 to 13,178. Above the 55-day SMA minor resistance can be seen between the early August low and late August high at 13,334 to 13,376.

S&P 500 trades in two-month lows

The S&P 500’s rapid descent from Tuesday’s 4,155 high, to 7% so far by close, is taking the index to its 3,720 July low as investors brace for a large US rate hike at next week’s Federal Open Market Committee (FOMC) meeting and worry about the impact it and further tightening will have on the US economy.

Furthermore, shares of companies such as Hilton Food Group took a massive plunge on Thursday, down 23.8%, having issued a profit warning earlier which was attributed to profit falls due to higher costs from inflation as opposed to falls in revenue.

FedEx also warned last night about further weakness in the economy and is down around 16% in after-hours trading.

The prospect of an aggressive response from the Fed to soaring inflation has pushed the S&P 500 to a two-month low with the 4 July high at 3,853 representing its next downside target.

Further down beckon the June and July lows at 3,720 to 3,636. Resistance above the 3,884 to 3,904 early September lows can be spotted at yesterday’s high at 3,958.