This week looks creepy after the S&P 500 broad market index lost
1.5% on Thursday alone, Crude prices fell by 5.2%, and 10-year U.S. Treasuries
yields spiraled below 1.29%. Safe haven currencies like Swiss Franc and
Japanese Yen are severely strengthening.
Even a single one of such movements could scare investors, but
altogether they signal to leave risky assets immediately. And, this time it may
be serious as the combination of falling stock market and crude prices along
with the rising interest for the Yen and more over in the Swiss Franc, which is
used only in emergency currency market situations, was not seen for a long
time.
Even 5% correction of the U.S. stock market in May and 6% long-lasting
correction in February of 2021 was not amplified by such coincidence. So, we
may be heading towards global “Risk on” sentiment affected by a possible
tapering of Fed’s monthly $120 billion bond purchase program.
The are no important macroeconomic data for today that should be
released, except the U.K GDP data for May. But investors should certainly pay
attention to the words of the Chairs of Bank of England, ECB, Federal Reserve
as they may introduce some extra features of loose monetary policy or
conditions for its tightening. And we have a bright example of ECB that has
suddenly “adjusted” its inflation target to symmetrical 2%, showing its resolve
of further economic downturn. In this paradigm ECB would not taper its bond
buying programs amid stalling economic growth even if the inflation overshoots
2%. But we could also have a surprise from the Fed if it would announce
tapering of mortgage-backed securities without any early warning.
Even if everything would go without any surprises on Friday but it is
better to keep an eye cocked as market indicators point to the worse negative
developments. And this negative scenario is more likely to evolve next week.
The S&P 500 index was testing a 4310 support level, but that might
be just a test of the reversal pattern after the index slid to 4286 points in
the end of June. If this scenario would be enforced the index may plunge to
4220 points.
Crude market is on the cutting edge of the correction as Brent crude
prices fell from its highs at $78.20 per barrel to $72.40.The formal excuse for
such decline is the struck meeting of OPEC+ that is now likely to resume in
August, while some OPEC+ countries may increase production without noticing
others. U.S. Administration also waved some concerns over rising crude and
petroleum prices, which could mean its intention to lower them. But if we would
look behind the curtain we may see a slowing down global economic recovery with
car annual sales down by 14% in June, that may hamper the demand for crude.
Nevertheless, technically we may see a resistance level for Brent crude prices
at $75.40 with a possible reversal next week.