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07.07.2023 02:24 PM
US premarket on July 7: Stock market awaits Non-Farm Employment Change report

Futures on US stock indexes declined as investors prepare for another round of US employment data, which will allow them to assess whether policymakers will support the interest rate hike program in the future or start speculating about reaching their peak value. In any case, even a slight slowdown and cooling of the labor market will not affect the July decision of the Federal Reserve when borrowing costs are likely to be raised.

Futures on the S&P 500 and Nasdaq 100 indexes declined by approximately 0.2% and 0.3% respectively after yesterday's significant drop caused by stronger-than-expected private hiring data from ADP.

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As mentioned before, traders are currently betting that the Federal Reserve will continue on the path of increasing borrowing, especially after yesterday's data from the ADP research institute, which showed that American companies added about half a million jobs in June of this year. Today's reports on non-farm employment and unemployment in the US will be a key factor in revising rate hike expectations.

One thing can be said for sure: considering yesterday's movements, the price already incorporates the risk of a stronger labor market. If the data align with economists' forecasts or, worse, turn out to be below expectations, the stock market will surely demonstrate growth as demand for risky assets returns. How long it will last is another question.

Treasury bond yields have already risen in Friday's trading, with the two-year yield, sensitive to policy changes, reaching around 5%, while the yield on 10-year bonds fluctuated near its highest level since March of this year.

Although July is usually a good month for the stock market, things are not shaping up well for risk asset traders. The aggressiveness of central banks from the US to the UK undermines hopes for a soft landing of the global economy. Tech stocks were among the hottest trades this spring, driven by the buzz around artificial intelligence, but now many economists claim that investors who have invested in this sector risk being caught off guard by a sell-off triggered by further interest rate hikes.

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If the excitement surrounding AI continues, the bubble will continue to inflate. A good earnings season, starting early next week may support a rally in technology companies.

As for the S&P 500 index, demand for the index has slightly decreased. Bulls have a chance to continue the uptrend, but they need to settle the price above $4,427 and $4,447. From this level, there may be a surge toward $4,469. Bulls should control $4,488, which will strengthen the bull market. If the index declines due to decreased risk appetite, bulls will have to protect $4,405. A break below this level may push the trading instrument back to $4,382 and $4,357.

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