The S&P
500 broad market index dropped 2.5% to 4480 last week as investors were
digesting U.S. labour market report for July. This data is mixed as
unemployment level was down to 3.5% from 3.6% in June, while Non-Farm Payrolls
were at 187,000 missing expectations at 200,000.
It seems
that U.S. labour market is cooling very slow, as wages continue to rise at the
same pace. The American economy is strong despite rising borrowing costs, and inflation
continue to be high. Thus, U.S. Federal Reserve (Fed) Governor Michelle
Bowman said the Fed likely need to raise interest rates further to bring
down inflation. The stock market may not survive current high interest
rates by September. So, another interest rates hike might be not needed, and
cooling down of the U.S. economy might be accelerated by itself.
Investors
are waiting for the inflation number for July to be released this week to asses
a possible further interest rates hike. The consensus is not good as experts
estimate CPI in July to rise by 3.3% YoY, ahead of 3.3% in June. This
acceleration may be largely attributed to 15% rise of crude prices in July.
U.S. debt market is the first to monitor in this regard. If the yield curve
inversion between 10-year and 2-year Treasuries continues to disappear it may signal
a stress for the stock market. The downgrade of the United States sovereign
rating by Fitch accelerated 10-year Treasuries yields up. This is rather unusual
way to normalise the yield curve, as in normal circumstances it is 2-year bonds
yields that should go down first after the Fed lowers its interest rates.
If the inflation
would be rising the yields on 2-year Treasuries could go up, as investors will
bet on another interest rates hike by the Fed in a short run, while in a long
period inflation will slow down anyway. From this point of view, high interest
rates may stabilize the stock market. This is not a primary scenario, but it is
worth to be considered waiting for the inflation data to be released this
Thursday.
Technically,
the S&P 500 index continues to have an upside formation with targets at
4250-4350 points, that have already been met. The benchmark dive below the
support at 4560-4580 points, and is heading towards 4440-4460. The downside
signal has been finally shaped with a short trade initiated at 4520 points.
Brent crude
prices hit the resistance at $86.00-88.00 per barrel, and are trying to form a
correction pattern. The support is located at $76-78 per barrel. Prices may
slip below $76 per barrel initiating a recession scenario with targets at
$67-69 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. The nearest support is set at $1900-1920 per ounce. However, the
similar scenario of August 2011 signals that this support will be very hard to
breakthrough.
The
Greenback has rolled back, still looking solid compared to its major peers. A
sharp correction of the American currency could be expected in August. If such
a correction would emerge, good buy opportunities for the Dollar should appear.
But before then, a risky long trade with a small amount is seen for GBPUSD from
1.27200-1.27400 with a target at 1.29400-1.29600, and a stop-loss at 1.26000.
If the trade will be successful, a further weakening of the Greenback could be
expected. It would be better to wait for a decline of the EURUSD below 1.05000
to seek out sell opportunities for the Greenback in this regard.