The S&P 500 broad
market index futures have risen by 0.15% to 5634 points, nearing last week’s
highs and approaching the all-time high of 5670 points. This upward movement
follows a robust buying spree on Friday, spurred by Federal Reserve (Fed) Chairman
Jerome Powell’s clear indication of a potential interest rate cut cycle
starting in September. Powell’s remark that "the time has come"
signaled the Fed’s confidence in bringing inflation down to the 2.0% target,
especially after inflation dropped to 2.9% YoY in July. Powell was more focused on
the labour market as unemployment rose to 4.3%.
Such a turnaround
caught investors by surprise. The market reaction was drastic and even exaggerated.
The U.S. Dollar fell by 0.8%, with the EURUSD hit 1.12000, the highest since
July 20, 2023. Gold prices rallied. Stocks also continued to the upside.
U.S.
10-year Treasuries yields fell to 3.79% from 3.92%. The reaction of the debt market
seem to be quite moderate for the Dollar to fall that strong. Bets on interest
rates cuts by the Fed in September remained almost unchanged.
Despite Powell’s
optimistic tone on inflation, his concerns about the labor market have raised
fears of a potential economic slowdown. This scenario is backed by significant
investor actions, with the SPDR S&P 500 ETF Trust (SPY) seeing net outflows
of $4.2 billion last week, excluding Friday. This could mark the fourth
consecutive week of negative fund outflows from the stock market.
This week
investors will be looking for Initial Jobless Claims again following Powell’s
elevated attention to the labour market conditions. PCE index for July is now
becoming less important as inflation risks became low. Investors expect positive
Q2 earnings report from tech giant NVidia (NVDA) this Wednesday. They would
also be preparing for the U.S. labour market report for August next week. This
is now the major event to understand Fed actions better.
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 are again retesting the $79.00-81.00 per barrel support
level Prices have bounced back to on increasing geopolitical fears in the
Middle East. 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 recent spike above $2,520
per ounce seems temporary. 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.