The upcoming
two week will frame the future of the stock market until the end of the year.
The first week will be driven by monetary decisions and macroeconomics as
investors will most likely be guided by these policy decisions made by the
central banks and by macroeconomic data.
The second
week will be more political as the elections in the United States will primarily
sketch the market landscape. The divided Congress in the U.S. could be less
useful for the market as cyclical movements of the economy have not yet been
considered properly.
Focusing
solely on U.S. politics could also be misleading as the monetary story is of
more importance as investors are seen to be praying for the Federal Reserve
(Fed) to slow down its interest rate hike trajectory. Investors have accepted
the 75 basis points interest rate hike by the Fed this week as a given, but are
hoping that Fed Chief Jerome Powell will send out signals that the central bank
will scale back the hike to 50 basis points or even to a 25 bp hike in
December. This move is seen to be necessary in order for the market to stay
afloat.
The
position of investors is clear, but what Powell will eventually do remains
uncertain. Flirting with the market could be a wise thing for Mr. Powell to do
in order to support the market ahead of the November elections and to secure
more room for the Fed in December in case inflation will slow down. What is
needed for this message to be delivered? The Fed should declare that its
decisions will be strongly affected by incoming macroeconomic data. So, if
inflation does not slow down by December the Fed may raise its interest rates
by 75 basis points. Otherwise, interest rate hikes could be lower, and this
will make investors happy. Other data is seen to be less important at the
moment as the rhetoric of the Fed this Wednesday is likely to be the only
guiding star for the market.
The S&P
500 index hit primary targets of the aggressive upside formation at 3850-3950
points and is currently rolling back. Whether it will experience further spikes
to the next upside targets at 4100-4200 points or slip down below the upside
formation will be decided by the Fed. Downside targets are far below at
2000-2200 points.
The oil
market is heavily dependent on geopolitics. The Organisation of the Petroleum
Exporting Countries and allies (OPEC+) clash with the United States pushed
prices above $90 per barrel of Brent crude benchmark and they are likely to
remain above this level. Any downside movements to the $88-90 level are likely
to happen after the elections in the United States on November 8. So, an aggressive
downside scenario with primary target at $75-85 per barrel is intact. Long-term
expectations that suggest Brent crude prices will dive towards $50-65 per
barrel should be rescheduled to the end of January 2023.
Gold prices
are moving within the mid-term downside formation. Prices have already reached
primary targets at $1620-1720 per troy ounce. Extreme downside targets are
located at $1350-1450 per ounce and could be reached by the end of 2022. But
even these downside movements are too uncertain to open trading operations.
The money
market continues to experience elevated volatility. So, it is better to place
orders considering longer perspectives and there are two signals that could be
considered. First is the short position for the USDJPY from 148.000-148.500,
and the second is short position for AUDUSD from 0.63700-0.64200. Both perspectives
have a significant potential to reach up to 5000 points with a large stop-loss
order span. Although these are risky operations and should be conducted in
November at low volumes.