The S&P 500 broad market index futures
experienced a significant decline of 1.6% this week, dropping to 5165 points.
This decline intensified on Thursday, with the benchmark hitting its lowest
level since March 19 at 5147 points. Overall, this week marked the worst
performance for the stock market since October 2023.
Initially, the S&P 500 index showed
stability in the first half of the week and even reached a new all-time high of
5286 points on Monday. However, a series of robust macroeconomic data releases
in the United States led to a retreat. Strong ISM Manufacturing PMI figures,
followed by an upward revision of Q1 2024 GDP estimates by the Atlanta Federal
Reserve, contributed to this downturn. Additionally, the ISM Service sector PMI
surpassed expectations on Wednesday, and the ADP Nonfarm Payrolls report
revealed a figure of 184,000, exceeding the forecast of 148,000.
All these strong data pushed U.S. 10-year
Treasuries Yields to 4.42%, the highest since November 28, 2023. According to
CME FedWatch Tool, bets on interest rates cuts by the Fed in June dropped to
56.2% from the previous 66.0%. The S&P 500 index started treading water, but
was still only 0.5% below this week’s opening. Then Minneapolis Fed President
Neil Kashkari hit the stage by saying that there could be no interest rates cuts
in 2024. “If we continue to see inflation moving sideways, then that would make
me question whether we need to do those rate cuts at all,” he said.
This was a big surprise for the markets after
three other Fed officials this week assured the crowd that three interest rates
cuts would be performed this year as was expected. Kahskari simply turned the
table upside down sending stocks immediately down by 1.42% in a single day, the
largest drop since the end of December The sudden hawkish tone was possibly
triggered by rising oil prices following Israel's strike on Iran’s consulate in
Syria, raising concerns about the possibility of Iran involvement in the
conflict. Brent crude prices jumped by 4.5% above $91.00 per barrel. This could
result in higher inflation that could beat the previous 3.2% YoY. Such developments
decrease chances for interest rates cuts in June. A strong cooling in the U.S.
labour market may save the situation, but this may not happen, unfortunately,
as estimates paint a different picture.
Looking ahead, the March Nonfarm Payrolls
(NFP) report is anticipated to reveal strong figures, with estimates ranging
from 212,000 to 226,000, and the unemployment rate expected to either remain at
3.9% or edge lower to 3.8%. Additionally, average hourly earnings are
forecasted to accelerate to 0.3% MoM. If these expectations materialize, they
could support Kashkari’s narrative to delay interest rate cuts, potentially
leading to further pressure in the stock market and increased Treasury yields
above 4.42%.
Technically, the S&P 500 index has
surpassed the final upside target zone at 4850-4950 points and entered a period
of potential correction opportunities. Therefore, monitoring any reversal
patterns that may emerge on the chart is advisable. The existing reversal pattern suggests a standard correction of
5-7%, with potential downside opportunities possibly emerging soon. The market
is craving for correction, but when it could start remain unclear. May be it is
has already started. If the S&P 500 index drops below 5050 points this
scenario would become a primary one. The nearest resistance is at 5230 points,
while support is at 5110-5130 points.
The oil market is full
of optimism, as prices are resting near the resistance at $92.00 per barrel of
Brent crude. From a technical standpoint, downward pressure prevails in the
market, expected to continue throughout mid-May. Therefore, a breakthrough is
unlikely. The nearest resistance is at $87.00-92.00 per barrel, while support
is at $81.00-83.00 per barrel.
Gold prices, having
reached mid-term upside targets at $2000-2100 per troy ounce, established a new
all-time high close to the resistance level at $2300 per ounce. This level
would be hard to breach. A technical period favorable for downside scenarios
has commenced, expected to last until mid-April. The retracement of prices is
highly likely. The nearest support is at $2200-2220.
The currency market is
very volatile this week. A strengthening of the Greenback by 0.6% in the
beginning of the week reversed with a weakening by 0.7%. The EURUSD is trading
around to 1.08400 after hitting high at 1.08760. Such volatility point to a
mixed sentiment in the market that has no solid direction now. Betting on both
the rising and declining EURUSD remains risky, with a return to the
1.11500-1.12500 area likely, but a drop to 1.05000 should not be excluded.