The longer it remains below 26400, it does look likely to struggle to return to its previous highs. Prior to the fall and for three weeks, the US30 index remained close to its all time high, after it has surged higher throughout June.
In the first week of July, the index consolidated a little in a narrow range roughly between 26500 and 26900, and it used that period of consolidating to great effect pushing higher to the new highs. The consolidation is also of little surprise after its price action over the few weeks beforehand. In early June the US30 index rallied strongly to return to back above the 25000 level and continue beyond another key level in 26000 to reach a then one month high, before consolidating a little and enjoying some support from 26000.
Given the significance of the 26000 level, there was little surprise that the index enjoyed some support from this level as it consolidated and it now finds itself back trading around that level attempting to move higher. Despite its excursion below 25000 in late May, this level remained likely to offer some support to the index. The month of May saw a strong decline for the index moving from a near all time high around 26700 down to its recent four month low.
According to some market strategists and US economists, the ongoing trade wars between the United States and China increases the chances of equities declining and more significantly, a global recession over the next 12 months. The significant increase in volatility in equities has been placed on warnings from the bond market while the U.S.-China trade war rages, as fears of a global recession have risen recently. Some suggest that the next U.S. recession could be caused by current Federal Reserve policy, which is seemingly reluctant to lower interest rates any further. Morgan Stanley’s chief economist, Chetan Ahya has suggested that the global economy would fall into recession around six to nine months after the U.S. and China enforce their new round of tariffs. “Risks remain skewed towards further escalation at least until material market or economic weakness shows,” Ahya told clients in a note. “Continued trade tensions, combined with reactive monetary and fiscal policy, mean that the risk of non-linear tightening in financial conditions, triggering a global recession, is high and rising.”
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