The S&P
500 broad market index fell by 3.5% last week after the Federal Reserve (Fed)
meeting and Non-Farm payrolls data for October was released. Fed’s Chair Jerome
Powell squelched investors’ hopes for a lower trajectory of the interest rates
hike cycle. He also said that room for a soft landing for the U.S. economy is
narrowing, while rising unemployment to 3.7% in October vs 3.5% in September
send a clear but partial message to the crowd that the stock market is likely
to continue downwards by the end of 2022.
U.S.
Congress elections this week and inflation data will likely provide the second
part of the answer as to where markets will finally be headed by the end of
this year. These elections are likely to give Republicans control over the
House of Representatives, while the scenario for the Senate is not that
certain. Investors are betting that republicans will also take over the Senate
but Democrats are very close. So, it would be better to wait for the election
results for a clear picture to be painted.
The
political landscape in the United States is crucial for the global market. If Democrats
have full control over both the House and Congress, they
could easily raise the U.S. debt ceiling from the current $31.26 trillion to
$31.40 trillion or approve bills that are possibly needed to ensure the soft
landing of the American economy. However, Republicans are not willing to help
Democrats in their quest to get Joe Biden re-elected for a second term as
president in 2024. So, Democrats would have to make serious compromises to get
any bills they think necessary passed.
Whether investors will
price-in all this chaos right after the elections or whether they will prefer
to wait is hard to say right now. Technically, stock markets that are looking
down may point to a rapid spike and further decline just after the election
results are announced. The S&P 500 index moved into a downside formation
last week with the target at 3400-3500 points. But there is more of an
uncertainty now concerning short-term movements. If Republicans win, we may see
the index at 3400-3500 points this week or next week maximum. In case Democrats
continue to dominate in Congress, we may expect a slow downside slide of the
index or even its reversal to the upside.
The oil
market is heavily dependent on geopolitics. The Organisation of the Petroleum
Exporting Countries and allies (OPEC+) clash with the United States pushed
prices above $90 per barrel of the Brent crude benchmark and they are likely to
remain above this level. Any downside movements to the $88-90 level are likely
to happen after the elections in the United States on November 8. An aggressive
downside scenario with the primary target at $75-85 per barrel may be activated
only after the elections. Long-term expectations that suggest Brent crude
prices will dive towards $50-65 per barrel are rescheduled to the end of
January 2023.
Gold prices
are moving within the mid-term downside formation. Prices have already reached
primary targets at $1620-1720 per troy ounce. Extreme downside targets are
located at $1350-1450 per ounce and are expected to be reached by the end of
2022. But even these downside movements are too uncertain and too risky to open
trading operations.
The money
market continues to experience elevated volatility. So, it is better to place
orders considering longer perspectives and there are two signals that could be
considered. The first is the short position for the USDJPY from
148.000-148.500, and the second is the short position for AUDUSD from
0.63700-0.64200. Both perspectives have a significant potential to reach up to
5000 points with a large stop-loss order span although they are risky
operations and should be conducted at low volumes. Both trades were opened last
week and are still active.