Dark clouds remain for SP500

Spring is here, and a new season upon us. However, there is no end in sight to the grey clouds circling the global economy as the previously announced 15% tariffs on U.S. $110bn of Chinese consumer goods, including footwear, smart watches and flat-panel televisions took effect over the weekend as did retaliatory Chinese tariffs on U.S. $75 bn worth of imports from the U.S.

For those expecting the more conciliatory tone evident between the U.S. and China at the end of last week to manifest into a postponement to the latest round of tariffs, some disappointment is evident in markets today. S&P500 futures are currently trading -0.50% below Fridays close.

I would be very sceptical if a repeat of last Monday’s sharp reversal higher occurs. The reason being despite the U.S. manufacturing sector suffering under the trade tension headwinds, the U.S. economy has continued to grow, aided by the resilience of the U.S. consumer. At the end of last week some evidence that the U.S. consumer might finally be faltering.

The University of Michigan’s final consumer sentiment survey showed consumer sentiment fell to 89.8 in August, its lowest level since October 2016 (chart below). Tariffs were flagged as a concern by one-in-three consumers, a reason for increased uncertainty and a reason to reduce consumer spending. If the U.S. consumer has finally blinked it is a negative development for U.S. equities.

Technically our view of the S&P500 is unchanged. A bearish view of the S&P500 remains in place, providing the S&P500 remains below the 78.6% Fibonacci retracement level at 2976 +/5 points. Confirmation that the next leg lower has commenced is a break/close below the August 2775.75 low. Should this occur the next downside target would then become the 2730/2700 support region.

Conversely, a daily close above 2976 +/5 points would necessitate a shift to a more neutral stance, at least from a technical point of view.

Source Tradingview. The figures stated are as of the 2nd of September 2019. Past performance is not a reliable indicator of future performance.  This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation

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