European equity markets closed with mixed outcomes. The German DAX fell by 0.60%, while Italy’s FTSE MIB decreased by 0.36%. Spain’s Ibex and France’s CAC ended near unchanged, both dipping by 0.08%. Meanwhile, the UK’s FTSE 100 rose by 1.08%.
In the U.S., equities experienced pressure, primarily led by the NASDAQ’s decline. The NASDAQ fell below its 200-hour moving average at 21,129.29 and continued to drop, ending 285 points lower at 21,026.03, marking a 1.34% decrease. Efforts to rise above prior levels were unsuccessful, indicating challenges in reversing bearish trends.
S&P 500 Struggles
The S&P 500 also encountered difficulties, sliding beneath its 100-hour moving average of 6,381.84. A short-lived recovery reached 6,383.32 but quickly dropped again, settling at 6,365. Both the NASDAQ and S&P 500 indices remain exposed to potential declines, as recovery attempts are hindered by failing to maintain crucial average levels.
With the NASDAQ and S&P 500 breaking below key short-term moving averages, we see a clear bearish signal from the US. This technical weakness follows last week’s US CPI data, which came in slightly hotter than expected at 3.5%, raising concerns that the Federal Reserve will maintain its restrictive policy. Derivative traders may consider buying puts on the QQQ or SPY ETFs to hedge against or profit from further downside in the coming weeks.
The divergence in Europe, with the UK’s FTSE 100 outperforming, points to sector-specific drivers rather than a broad regional trend. The FTSE’s strength is largely due to its heavy weighting in energy stocks, as Brent crude oil has climbed back over $95 a barrel amid renewed supply concerns. In contrast, the German DAX is suffering from recent manufacturing PMI data from China that pointed to a slowdown, hurting German export sentiment.
Market Volatility
This market environment is showing rising fear, as the VIX has climbed over 20% this past week to settle near 18, a level we haven’t consistently seen since the spring. This pattern of US tech weakness and commodity-led strength in other regions is reminiscent of what we saw during parts of the 2022 rate hike cycle. We should watch the upcoming central bank commentary closely, as options pricing suggests increased volatility around those September meetings.
