This trading week ends on a risk off mode that finally has been
established. Thus, we may expect developing trend in declining stock indices
and crude oil together with strengthening U.S. Dollar to escalate.
However, these trends are developing on a controversial macroeconomic
background and debt market rebound. The macroeconomic data published this week
turned to be quite positive. The business activity in Eurozone, the United
States and United Kingdom continues to rise above neutral level. On one hand,
it may be logical given seasonal economic recovery. But such sentiment is not
confirmed by other actual economic data such as retail sales that are dropping
both in annual and monthly figures.
We should understand that we are looking at the developed countries with
high share of their GDP generated by local consumption. So, either retail sales
figures are wrong or business positive sentiment is too exaggerated.
The second option is more likely since retail sales are the actual
statistical data, but PMIs are measuring the activity level of purchasing
managers and are based on a survey. Managers are looking optimistic on the situation with
lockdowns and delayed demand.
So,
it is too early to say that the economy in the developed countries is on a steady
recovery path. However, we may see a formal economic growth, but we should be
waiting for additional confirmation in sales.
Yields on the U.S. debt market were declining throughout this week, from
a record of 1.75% on 10-year Treasuries to 1.59%. Investors are starting to buy
“cheap” U.S. debt. Even Financial Times wrote over the capital spillover from
equities to bonds as money managers rebalanced their portfolios close to the
end of the quarter. On the other hand, the saga of rising yields is far from
being over and may soon return. It may coincide with the correction in the
stock markets when money managers would start buying “cheap” stocks instead of
bonds.
Despite the macroeconomic positive sentiment stock markets are at the
crossroads. The broad market S&P 500 index in this situation is set to drop
to its weekly support levels at 3790 points. More severe decline may be
expected next week.
Oil
market may suffer given a strong correlation with stocks. The support level at
$61 per barrel of Brent crude is still guarding prices from falling further,
but any buy position at this level would be unwise at the moment. In case of a
rapid drop in S&P500 index crude prices may slide below $61 per barrel
Nothing
interesting in Gold, except maybe that Federal Reserve Chair Jerome Powell
compared cryptos rather with gold assets than U.S. Dollar. Gold is still
trading in a range of $1700-1750 per troy ounce. And that seems oddly as debts
yield are down, North Korea is escalating geopolitical tensions by launching
new ballistic missiles. So, may be gold is not an attractive asset now as
investors prefer to buy Treasuries.
The
Greenback continues to strengthening breaking resistance levels in major currencies.
The EURUSD started its descend to 1.15300, while the GBPUSD is falling towards
the support at 1.35100.
The
USDJPY is still in a long reverse pattern deciding the resistance level it
would decline from. The pair may still fall from the current levels at
109.00-109.50, or perform an upward spike to 110.50 and then drop to 106.50.