The S&P 500 broad market index futures
have fallen by 1.5% to 5528 points this week, continuing a three-day decline
from the new all-time high of 5670 points recorded on Tuesday. This downturn
comes despite excellent Q2 corporate reporting and a dovish U-turn by Federal
Reserve (Fed) Chair Jerome Powell.
The week began with strong Q2 corporate
earnings reports from Goldman Sachs (GS), extending the positive streak for
American banks. However, the major boost came from Jerome Powell's indication
of potential interest rate cuts in September, a stark contrast to his testimony
to Congress the previous week. Speculation suggests political pressure from the
Biden Administration, which is trying to gain an edge over Republican
presidential nominee Donald Trump, who has warned the Fed against cutting
interest rates before the election.
Political uncertainty has increased,
especially with President Joe Biden’s recent coronavirus diagnosis. This has
intensified pressure for him to step down from the presidential race, causing
the odds of his official nomination by Democrats to drop to 22.0% while the
chances of Vice-President Kamala Harris becoming the nominee have surged to
over 62.0%.
Despite these uncertainties, the market
reaction has been moderate. While Netflix (NFLX) reported strong Q2 results
with rising subscribers and profits, weak Q3 revenue guidance overshadowed the
positive news, causing Netflix stocks to drop by 1.2%. Net fund inflows into
SPDR S&P 500 ETF Trust (SPY) this week were $1.35 billion, indicating a
cautious but steady investor sentiment with no significant sell-offs.
No major macroeconomic
data is expected on Friday, but political insiders speculate that Joe Biden may
drop out of the race over the weekend, potentially increasing market
nervousness and leading to further declines in stocks. Upcoming corporate
reports from Big Tech and the Personal Consumption Expenditures (PCE) index for
June, a key inflation gauge for the Fed, could stabilize the market outlook.
From a technical
perspective, the S&P 500 index has surpassed its primary targets of
5250-5350 points and reached extreme targets at 5580-5680 points. Immediate resistance is at 5590-5610 points, with support at 5490-5510
points. If the index closes in the red on Friday, correction signals may
emerge.
Oil prices are stuck in
the middle of the wide trading range between $80.00-82.00 and $88.00-90.00 per
barrel for Brent crude. Prices were at $83.59 per barrel this week. Technically
favorable period for oil prices has ended, limiting upside potential. The
chances for a drop in Brent prices to $80.00-82.00 per barrel are rising.
Gold prices, having
reached mid-term targets of $2000-2100 per troy ounce, are now eyeing extreme
targets of $2400-2500. A technical period, favourable for price increases will
start next week. So, gold prices may be hovering inside $2400-2500 range by the
end of August. For a downside scenario targeting $2200 per ounce to
materialize, support at $2300-2320 must be breached. Immediate resistance is at
$2490-2510, while a support is at $2300-2320 per ounce.
The Dollar is rising
by 0.2% this week. The EURUSD almost hit its upside targets at 1.10000-1.11000,
reaching 1.09470. The pair is going for a retest the support at 1.08100-1.08400.
This is a pivot point for decision making. A rebound towards 1.10000 and a
downside scenario towards 1.05000 have equal chances to materialize.