On Monday, the S&P
500 broad market index futures slipped by 0.2% to 5,554 points, marking a minor
technical correction following last week's impressive rally—the best since
November 2023. Despite this pullback, the index reached an all-time high of
5,570 points on the same day. This resilience, coming after the U.S. labor
market’s weakness in July, might suggest underlying strength in the market. owever, the lack of
confirmed support from large investors raises concerns, as the SPDR S&P 500
ETF Trust (SPY) has yet to report its fund flows during this critical time.
All eyes are on Federal Reserve Chairman
Jerome Powell’s testimony at the Jackson Hole central bankers' meeting this
Friday. Historically, the Fed uses this platform to outline its monetary policy
for the upcoming year. Investors are currently betting with a 71.5%
probability, according to the CME FedWatch Tool, that the Fed will cut interest
rates by 0.25 percentage points in September. This outcome is seen as likely to
reinforce confidence in the U.S. economy and support a smoother monetary easing
process.
A more aggressive cut of 0.50 percentage
points, however, could signal economic weakness and might trigger another stock
market sell-off. This potential scenario echoes the market's reaction to early
August’s sell-off, prompted by concerns over labor market weakness. The S&P
500 index fell by 8.0% then. So, it would be better for the Fed to cut interest
rates by 0.25 percentage points and signal further interferes rates cuts sometime
soon. This would reinforce confidence in the strength of American economy and
support hopes for swift monetary easing.
This is a
most likely scenario at the moment. But, the path to it will be uneasy. First,
the Fed will publish its Minutes form the last meeting late July. No, troubles
are seen here. But the very same day on Wednesday Nonfarm Payrolls will be
revised. Goldman Sachs expects it to tumble by 600,000-1,000,000. This may push
unemployment by another 0.2-0.3 percentage points. Such a jump of unemployment
level in July (to 4.3% from 4.1%) provoked stocks sell off in early August. So,
investors should be prepared to a negative reaction on the news.
Manufacturing
and Services PMIs will be released in Japan, the Eurozone, in the United
States, and in the United Kingdom on Thursday. Analysts expect mixed numbers.
Surprises should not be excluded. U.S. Vice President Kamala Harris will give a
headline speech on the Democratic convention ahead of the elections this
November. The economic part of this speech will be of particular interest.
The U.S.
stock market is likely to remain flat of perform a slight retracement before
Friday. The S&P 500 stock index has met its targets at 5450-5500 points.
New extreme targets at 5850-5950 points will be hard to reach now. So, a slight
decline in stocks is seen rather plausible.
Technically, the
S&P 500 index outlook is unchanged. The benchmark hit its primary upside
targets at 5450-5550 that should be met by mid-September. This rapid climbing led
to rising overbought tensions. Immediate resistance lies at 5540-5560 points,
with support at 5410-5430 points.
In the oil market,
Brent crude oil prices are retesting the $79.00-81.00 per barrel support level,
currently trading close to $79.00. The next key level for Brent is at
$70.00-72.00 per barrel. The period that is technically favorable for oil price
increase will last by mid-September. So, a sharp decline from current levels is
unlikely.
Gold has achieved its
mid-term targets of $2,000-2,100 per ounce, with a potential for further
consolidation within the $2,400-2,500 range in August. The immediate resistance
for gold lies at $2,490-2,510, with support at $2,390-2,410.
The EURUSD pair has
reached its primary upside targets at 1.10000-1.11000 again. This movement
increases the likelihood of an upside scenario with extreme targets at
1.14000-1.15000. To activate this scenario, the pair would need to climb above
the 1.11000 level.