The S&P 500 index futures are experiencing
a mixed week, rising by 0.6% to 5596 points, but falling from Thursday's high
of 5642 points. This brings the index closer to its all-time high of 5670
points. However, the ongoing retreat could potentially erase the gains made
earlier in the week.
The first half of the week was characterized
by positive developments, such as a 5.0% drop in oil prices, which eased
inflation concerns, and hints from U.S. policymakers about potential monetary
easing. The release of the FOMC Minutes on Wednesday pointed to a likely
interest rate cut by the Federal Reserve (Fed) in September. Despite this,
disappointing U.S. labor market data cast a shadow over the optimism. A
significant revision of Nonfarm Payrolls figures from April 2023 to March 2024
cut 818,000 jobs from the previously estimated 2.9 million, marking the largest
revision since the 2009 financial crisis.
In response to these developments, Wall Street
analysts advised caution, noting that other macroeconomic indicators did not
signal an imminent downturn. However, Thursday's Initial Jobless Claims report
showed a rise, indicating ongoing weakness in the U.S. labor market. While the
Services PMI continued to expand, the Manufacturing PMI dropped further into
contraction territory at 48 points, fueling recession fears.
Political developments also added to the
uncertainty. Democratic nominee Kamala Harris's speech at the Democratic
National Convention did not focus heavily on economic issues, which
disappointed some investors. Her promises to cut middle-class taxes and fight
corporate price gouging seemed more aligned with a socialist agenda, raising
concerns about potential economic stagnation and civil unrest. In contrast,
Donald Trump's economic agenda appeared more focused on American economic
expansion.
Investor sentiment has been cautious, as
evidenced by the SPDR S&P 500 ETF Trust (SPY) reporting net outflows of
$438.5 million last week and an additional $2.3 billion this week. This
indicates that large investors participated in the recent sell-off and may be
hesitant to buy at all-time highs, raising the possibility of a "Dead cat
bounce."
Looking ahead, Fed Chair Jerome Powell's
upcoming speech at the Jackson Hole central bankers' symposium is highly
anticipated. Given the latest economic developments, Powell may adopt a more
hawkish stance than investors expect, which could lead to a stock market
retreat and a stronger U.S. Dollar.
Technically, the
S&P 500 index outlook is unchanged. The benchmark hit its primary upside
targets at 5450-5550 that should be met by mid-September. This rapid climbing led
to rising overbought tensions. Immediate resistance lies at 5540-5560 points,
with support at 5410-5430 points.
In the oil market,
Brent crude oil prices failed to retest the $79.00-81.00 per barrel support
level, and retreated to $75.82. Prices have bounced back to $78.00 per barrel. The
period that is technically favorable for oil price increase will last by the beginning
of September. So, a sharp decline from current levels is unlikely.
Gold has achieved its
mid-term targets of $2,000-2,100 per ounce, with a potential for further
consolidation within the $2,400-2,500 range in August. The immediate resistance
for gold lies at $2,490-2,510, with support at $2,390-2,410.
The EURUSD went above
its primary upside targets at 1.10000-1.11000. However, this movement was made
without a preliminary correction. This lowers the likelihood of an upside
scenario with extreme targets at 1.14000-1.15000. The overbought tension is
very intense signalling a likely retreat soon.