The S&P 500 futures have seen a steep
decline of 3.3% this week, marking the largest drop since March 2023. If this
trend continues and surpasses 4%, it could represent the biggest fall since
September 2022. The index is approaching a critical point that could shift its
formation to the downside, targeting 5200–5300 points, signaling a second 6–7%
correction within 30 days. Should the current uptrend resistance fail, a plunge
to 4700–4900 points is possible, underscoring the importance of the upcoming
U.S. labor market report.
Recent U.S. economic data has been
disappointing, heightening concerns about a recession. Key figures such as the
Manufacturing PMI (47.9), Job Openings (JOLTs) at 7.673 million, and ADP
Nonfarm Payrolls (99,000, the lowest since September 2023) have all fallen
short of expectations. While jobless claims improved, it hasn't been enough to
offset the negative sentiment. These concerns have driven U.S. Treasury yields
down, with the 10-year yield slipping to 3.70%. The probability of a 0.50% interest
rate cut by the Fed has now risen to 45%, reflecting increasing market
pessimism.
Recession fears have increased dramatically.
U.S. 10-year Treasuries yields dropped to 3.70% from 3.91%. Bets on interest
rates cuts by 0.50 percentage points by the Federal Reserve (Fed) on its meeting in September jumped
to 45.0%, up from 34.0%. Stocks are being sold off, while debt is in the demand
now.
The SPDR
S&P 500 ETF Trust (SPY) reported minor net outflow of $33.99 million this
week, and revised last week’s net outflow up to $3.9 billion. Following the
current trend the Fund may report a sixth negative week in a row.
Our
statistical modeling suggest August Nonfarm Payrolls at 165,000-190,000, above
consensus at 164,000. The unemployment is likely to remain at 4.3% in a
baseline scenario, or edge lower to 4.2%. Consensus is at 4.2%. If the actual
data would meet this forecast market reaction could be vigorous. Numbers above consensus
could send the S&P 500 index up, and strengthen the U.S. Dollar. Disappointing
number could initiate panic.
Technically, the
S&P 500 index is very close to the reversal. An upside formation with
primary upside targets of 5450-5550 could be replaced by a downside formation
with targets at 5200-5300 points. The nearest support is at 5410-5430 points,
while the closest resistance is at 5510-5530 points.
Brent crude oil prices
fell almost to the support at $70.00-72.00 per barrel. The period favorable for
an oil price decreased has started, making a decline to the support highly
likely. The Organization of the Petroleum Exporting countries and its allies
(OPEC+) has decided to postpone production increases by December. This has
provided some support to prices. The nearest resistance level is at $79.00-81.00
per barrel.
Gold has achieved its
mid-term targets of $2,000-2,100 per ounce and could further consolidate within
the $2,400-2,500 range. Investors are trying to push prices higher above $2,490-2,510
per ounce resistance. But, these efforts are seen unsuccessful now. The next
strong resistance is at $2,600 per ounce. However, there are no strong reasons
for a sustained rally. The immediate support for gold is at $2,390-2,410.
The EURUSD has
returned to its primary upside targets of 1.10000-1.11000. Extreme technical
overbought tensions has been removed. There are some chances the pair could go
further down to 1.10000. If the support holds, the likelihood of an upside
scenario with extreme targets at 1.14000-1.15000 will increase dramatically.
Otherwise, the pair may tumble lower, with a clearer direction expected after Nonfarm
Payrolls data release.