The S&P
500 broad market index has been losing 2.5% this week after Federal Reserve
(Fed) officials failed to provide any support to the stock market this week
amid a stalling economy. Investors were hoping the Fed would ease its monetary
stance after quite disappointing macroeconomic data for the U.S. economy was
released this week.
Retail
sales in the United States in December 2022 contracted by 1.1% month-on-month
vs the expectation of a 0.8% rise. Industrial production dropped by 0.7%
month-on-month against the expected 0.1% decline. Together with slowing down
inflation of 6.5% year-on-year, investors were looking forward to the Fed adding
some positive tunes to support the market. But the Fed kept its resilient
stance in place as Cleveland Fed President Loretta Mester, St. Louis Fed
President James Bullard, and Fed Board member Christopher Waller, continued
with their hawkish rhetoric this week. When the hawkish chorus was joined by
Fed Governor Lael Brainard, investors understood they had underestimated the Fed’s
determination to continue with its battle with high inflation at any cost.
This is
particularly bad news for risky assets, and this may lead to a turmoil in the
stock market this February-March. Technically, the S&P 500 index is within
the upside formation with the primary target at 4100-4200 points. The index is
now close to the support zone at 3900-3920 points, and may recover to 3980-4000
points. However, if the support is broken, the index may tumble to 3820-3840,
and reach even further down with a possible change of the formation to the
downside.
Brent crude
prices are going up in the effort to break through the resistance at $87-89 per
barrel. The weakening U.S. Economy and the Lunar New Year in China may crush
these efforts as prices may roll back to the support level at $77-79 per
barrel. If this base scenario plays out, prices may continue down to $68-70 per
barrel.
Gold prices
are moving inside the mid-term and are thought to move within the upside
formation with targets at $2000-2100 per troy ounce by the middle of 2023. Prices
have largely exceeded the upper margin of $1880-1900 per ounce, hovering around
$1930 per ounce and are thought to go through more geopolitical tensions,
making the outlook for future price movements quite uncertain. Odd price growth
over the last week may suggest a further price rally without any stopovers, but
also signal a possible swift change of a trend to the downside during elevated
volatility to rewrite last year’s lows.
The money
market is ready for the strengthening of the U.S. Dollar. Considering high
volatility in the market, potential strengthening of the Greenback may be very
strong, especially if it will be accompanied by the tumbling stock market. It
is better to place orders that are attached to longer perspectives. 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
should be considered very attractive this January.