The S&P 500 index futures are trading flat at 6082 this week, following a sixth consecutive all-time high of 6099 points achieved last Friday. The U.S. labor market report for November presented a mixed picture. Nonfarm Payrolls surged to 227,000, surpassing the consensus of 202,000 and marking a significant jump from October’s upwardly revised 36,000 jobs. However, this positive development was countered by a rise in the unemployment rate to 4.2% from 4.1%.
In response, U.S. 10-year Treasury yields fell to 4.13%, and market expectations for a December quarter-point rate cut by the Federal Reserve rose to 85.1% from 66.0%. Strengthening sentiment around continued monetary easing could shift if inflation data, due Wednesday, shows unexpected upward pressure. Consensus forecasts suggest November inflation will increase slightly to 2.7% YoY from 2.6%. A higher-than-expected figure could reignite debate around a hawkish pause by the Fed, especially given Chair Jerome Powell’s cautious comments on October 18, potentially triggering a pullback in the S&P 500.
If inflation continues to moderate, as anticipated, and the Fed delivers a rate cut next week with at least neutral rhetoric, a year-end Santa Claus rally could push the S&P 500 to test its upper target of 6150 points or even climb toward 6500.
U.S. producer prices for November that will be released on Thursday are not that much important in the context of the upcoming European Central Bank (ECB) meeting the same day. Producer price index is expected to increase to 2.5% YoY from 2.4%. ECB is expected to lower its interest rates by a quarter point, but this move is likely priced in already considering the European debt market dynamics. November inflation in the Eurozone has increased to 2.3% YoY from 2.0%. which may result in a moderately hawkish rhetoric by ECB President Christine Lagarde and rising Euro.
The SPDR S&P 500 ETF Trust (SPY) reported neutral capital flows for the last week, a net outflow of $1.36 billion in the prior week and a huge $10.11 billion of outflows during a third week of November. The latter is the largest weekly outflow since mid-June, when the benchmark added 3.6% during that month, and pulled back by 10.0% after massive outflows were reported. Is this scenario will be replicated we may have a pullback in the second half of December or in January. So, large investors doubt the S&P 500 would break through 6150 barrier.
From a technical perspective, the S&P 500’s outlook is worsening. The index surpassed initial targets at 5700-5800 points and hit the targets at 6050-6150. The benchmark has to hold above the resistance at 6150 points to climb further. Otherwise, a correction could appear. A pullback could emerge in the last ten days of December.
In commodities, Brent crude prices are hovering at $71.80 per barrel. The nearest resistance is at $78.00-80.00, with support at $69.00-71.00. The Organization of Petroleum Exporting Countries and its allies know as OPEC+ delayed production increase until April 2025, as expected. Chances for a decline below the support towards $59.00-62.00 per barrel are rising.
Gold prices are steady at $2,660 per troy ounce this week. The nearest resistance is at $2,750-2,770. In case of a breakthrough, prices could continue toward $2,870-2,890, with possible highs of $3,200-$3,300.
In the currency market, the EURUSD is trying to recover jumping to 1.06290 last Friday, but immediately retraced to 1.05410. This week the pair is at 1.05800. The volatility was prompted by the mixed November Nonfarm Payrolls data. If U.S. 10-year debt yields continue to decline the pair may climb above 1.05700 opening a path for a larger recovery to 1.09500-1.10500.