The U.S.
Consumer Price Index (CPI) edged lower to 4.9% year-on-year, beating the expected
5.0%. The Producer Price Index (PPI) went even further down to 2.3%
year-on-year from the previous 2.7%.
Supposedly,
that should be more than enough to push stock indexes up, as slowing down
inflation confirms a possible end of the Federal Reserve’s (Fed) monetary
tightening cycle. But the S&P 500 broad market index is mostly unchanged,
close to 4140 points. There are several reasons for this, including debt
ceiling debates deadlock and the still evolving banking sector troubles.
The meeting
of the U.S. President Joe Biden, who represents Democrats, with the House
speaker Kevin MaCarthy from the Republican side, has been postponed until the
beginning of next week. Some investors consider it as a deadlock in talks,
while others see progress on the substitute level. Joe Biden is scheduled to
attend the G7 meeting in Hiroshima (Japan) on May 19-21. So, he has very little
time left to settle the debt ceiling issue with Republicans. Next week is
likely to be decisive for the resolution.
PacWest
Corp, that has been sending distress signals since last week, as it was seeking
for a potential buyer, has reported it lost 9.5% of deposits amid the bank run
last week. This it definitely too much for such a short period of time. PacWest
Bancorp (PACW.O) stocks immediately plunged by 23% on the news, dragging the
banking sector index down. Jamie Dimon, CEO of JPMorgan, called U.S. Securities
and Exchange Commission (SEC) to probe the short-sellers of the banking stocks
to restore confidence in the banking sector. The call came just after he said
that regional banks are “quite strong.”
However, there
is likely to be a drop in stock indexes not before, but after the formal
deadline of a debt ceiling talks in early June. Meanwhile, stocks are likely to
move sideways unless some serious troubles in U.S. large banks are revealed.
Technically,
the S&P 500 index has an upside formation with targets at 4500-4600 points.
The index failed to dive below the support level of 4050-4070, and recovered to
the resistance at 4150-4170 points. The resistance has now moved to 4200-4220
points, and the support – to 4080-4100 points. We may expect the index to settle
inside this range.
The
recession scenario chances are rising in the oil market as Brent crude prices
continue to tumble towards $40-60 per barrel, which is the recession target.
Prices tested the resistance at $77.00-79.00 per barrel and are moving down to
the $67.00-69.00 level per barrel. Once they breakthrough this level they may
accelerate further down. However, this will largely depend of the efforts of
the Organisation of the Petroleum Exporting Countries and its allies, known as
OPEC+, to stabilise prices.
Gold prices
are moving inside the mid-term upside formation with targets at $2000-2100 per
troy ounce that have already been met. A fierce struggle for the important
level of $1980-2000 per ounce resulted in the upside scenario with targets at
$2070-2090. Prices were very close to $2062, but rolled back to the $2000
support level. Another testing of the resistance at $2070 is likely since prices
are above the crucial support of $1980-2000 per ounce.
The
monetary market situation is complicated. Short trades for EURUSD opened at
1.06700-1.07200 with a downside target at 5000 points below the opening level
and the same 5000 points for a stop-loss order are intact. The decline of the
EURUSD to 1.05000-1.05500 was used to close half of the trade. The other half
should be closed at 1.05000-1.06000 considering recent developments.