The first
week of July ends on a rather pathetic note. The S&P 500 broad market index
is declining by 0.9% to 4408 points. But the worst came from the debt market as
the yields are rising across the entire debt yield curve.
The U.S.
10-year Treasuries’ yield peaked 4.09% this week, while the 2-year Treasuries’
yield surged to 5.10%, the highest since 2007. Tis made the inversion of the
debt yield curve the largest since 1981. Strong macroeconomic data pushed the yields
up. Services PMI in the United States came out surprisingly strong at 54.4
points vs 54.1 points expected, while Manufacturing PMI was at disappointing 46.3
points in June vs 48.4 in May. Non-Farm Payrolls was surprisingly low at
209,000 missing consensus at 225,000. However, this could be considered rather
strong amid declining unemployment.
Still very
strong U.S. labour market creates a steady high inflation risks that may prompt
the Federal Reserve (Fed) to raise its interest rates not twice, but at least
three times this year by 0.25% points. This is what Fed’s Chairman Jerome
Powell has recently talked about in the end of June. The Fed might be worried
by rising wages that push inflation up. Average hourly Earnings continues to rise
by 4.4% YoY, above expectations of a slowdown to 4.2%. The same trend continues
on the monthly basis as earnings rose by 0.4% in June, the same as it was in
May, which was revised from 0.3%. The unemployment contracted to 3.6% as expected
from 3.7% in May.
Investors
to the utmost believed the Fed might make a U-Turn in its tight monetary policy.
If this won’t be the case rising yields especially on short-term debt may overwhelm
the stock market if this belief will continue throughout next couple of months.
If investors continue to believe the Fed would raise interest rates in
September markets may fall under very strong pressure.
Technically,
the S&P 500 index continues to have an upside formation with targets at
4250-4350 points, that have already been met. The market bounced from the resistance
at 4440-4460 points, and is moving towards the 4340-4360 points. So, a good
reversal conditions are forming with a possible downside signal to emerge next
week.
Brent crude
prices have failed to test the support at $67-69 per barrel, and bounced back
towards the resistance at $76-78 per barrel. Once the support would be broken,
recession scenario chances will become very high. Its targets are at $40-60 per
barrel of Brent crude.
Gold prices
are moving inside the mid-term upside formation with targets at $2000-2100 per
troy ounce that have already been met. But the situation has changed dramatically
as the important support level of $1980-2000 per ounce was smashed. Short
positions were opened after prices tested the $1970-1980 former support level
with targets at $1890-1910 per ounce. The first half of this trade was closed
at $1910 per ounce, while the second half was left open with the stop-loss
order moving to $1980 to avoid any losses, and amid expectations of some extra
profit. When prices would pass the $1900 per ounce level this downside scenario
will be activated.
The Greenback
is struggling after the Non-Farm Payrolls report. Still, It has some chances to
resume strengthening. But it is too risky to go long on the Greenback at the
moment. It would be better to wait for a decline of the EURUSD below 1.06000 to
seek out sell opportunities for the Greenback.
Two major
positions were opened for July. First, is a short position for the EURUSD at
1.08900-1.09200 with the take profit and stop loss both set at 5000 points from
the opening price. A long trade for the AUDUSD was opened from 0.66400-066600
with the same size of the stop loss and take profit orders as for the EURUSD.
Two operations balance each other and should be kept to mitigate risks.