Wall Street Wrap: “Good news is bad news” kept US indices on the backfoot

Market Recap

The “good news is bad news” mantra continued to play out in Wall Street overnight, as stronger-than-expected US job openings and factory goods orders joined the recent run in robust economic data to challenge the upcoming pace of Federal Reserve (Fed)’s policy easing. The debate of whether we will see cumulative 75 basis point (bp) rate cut or 50 bp rate cut this year runs on, although follow-up comments from Fed officials seem to suggest that it will have to take much more to sway their views for imminent policy easing.

In their overnight comments, both Fed officials, Loretta Mester and Mary Daly, maintained their view for three rate cuts as the likely scenario for 2024, somewhat aligning with the Fed Chair Jerome Powell’s views that inflation will be on a "bumpy path" towards the central bank's 2% inflation goal. Market rate expectations saw a slight lean towards a June rate cut with a 62% odd (versus 57% at the start of the week), but with the US 10-year Treasury yields briefly touching its highest level since November 2023, major US indices struggled to pare back much gains for now.

Look-ahead: US services PMI

With the surprise expansion in the US manufacturing sector this week, eyes will be on whether the economic resilience will be mirrored in services activities as well. Past historical recessions in the US tend to be marked by its services activities in contractionary territory, so as long as we do not see it happen, the odds may continue to lean towards a soft-landing scenario.

However, with the “good news is bad news” narrative in place, markets will be hoping to see a softer read. Current market consensus is for US services Purchasing Managers’ Index (PMI) to remain in expansion at 52.7, a slight uptick from the previous 52.6 in February. Focus will also be on the prices paid by the firms to offer some reassurances if inflation trend will continue to slow.

What to watch: Nasdaq 100 retesting upward trendline support

The Nasdaq 100 index is back to retest an upward trendline support in place, with its daily relative strength index (RSI) potentially facing a point of reckoning ahead by flirting with its key 50 level. Since November 2023, the daily RSI has managed to defend the mid-line, which keeps buyers in control of the upward trend. Should the trendline support fail to hold, the index may potentially move to retest the 17,800 level next. On the upside, the all-time high at the 18,468 level will remain as key resistance to overcome.