Markets are
struggling ahead of the April labour market data publication. The S&P 500
broad market index fell by 2.3% to 4077 points despite quite positive results
of the Federal Reserve (Fed) and European Central Bank (ECB) meetings this
week. Both regulators raised their interest rates by 0.25 percentage points,
which were expected by investors.
These
decisions were very inspiring as both the Fed and ECB signaled a possible pause
after the most recent rise in rates. The Fed seems to be the first that will
take a break in June and possibly beyond, while the ECB is likely to follow
with some delay. However, the market needs more to resume the rally. Investors
are trying to front run the Fed as they bet the watchdog may start decreasing
its interest rates in July or September this year. But that bets were spoiled
by a new chapter of the banking crisis in the United States, where PacWest
Bancorp (PACW.O) and Western Alliance Bancorp (WAL.N) emerged as new candidates
for bankruptcy. These are smaller regional banks compared to Silicon Valley
Bank (SVB) and First Republic Bank (FRC) that collapsed in March. But they are
big enough to remind investors that the banking crisis is far from being over.
The
American Bankers Association urged U.S. Securities and Exchange Commission
(SEC) to reduce ‘abusive’ trading as many regional banks’ stocks became a
subject of significant short sales. This sounds absurd as markets are now
performing regulators actions, highlighting the weaknesses of the banking
system before it would be too late for the Federal Deposit Insurance
Corporation (FDIC) or even the Fed to interfere. PacWest Bancorp (PACW.O) and
Western Alliance Bancorp (WAL.N) are unlikely to resuce themselves. So, it
would be better to address FDIC promptly to get guarantees need to be acquired
by some of the U.S. large banks.
Meanwhile,
investors are waiting for another portion of the labour data for April that
will be released today. This data may indicate whether the Fed will end
interest rate hikes or if it will be just a break for the watchdog. The second
portion of the vital data will be released next week, when April Consumer Price
Index will be published.
Our
statistical modeling for Non-Farm Payrolls is optimistic with a possible
270,000 jobs created in the American economy, better than 180,000 consensus.
The same optimism could be attribute to the unemployment level which is seen to
be unchanged at 3.5% after initial jobless claims rose by 50,000 in April.
Consensus suggests that the unemployment level could edge higher to 3.6%.
Technically,
the S&P 500 index has an upside formation with targets at 4500-4600 points.
The index is resting slightly above the support level of 4050-4070. It may
recover to 4150-4170 points if this support survives. Otherwise, it is likely
to continue down towards 3950-3970 points.
The
recession scenario chances are rising in the oil market as Brent crude prices
continue to tumble towards $40-60 per barrel, which is the recession target.
Prices went below the support at $77.00-79.00 per barrel and are moving down to
the $67.00-69.00 level per barrel. Once they breakthrough this level they may
accelerate further down. However, this will largely depend of the efforts of
the Organisation of the Petroleum Exporting Countries and its allies, known as
OPEC+, to stabilise prices.
Gold prices
are moving inside the mid-term upside formation with targets at $2000-2100 per
troy ounce that have already been met. Prices rebounded from the support level
at $1980-2000 per ounce, targeting the resistance at $2070-2090. They are very
close. So, investors should wait for the price to cross the resistance and take
appropriate actions afterwards, considering a likely deep correction may follow.
The
monetary market situation is complicated. Short trades for EURUSD opened at
1.06700-1.07200 with a downside target at 5000 points below the opening level
and the same 5000 points for a stop-loss order are intact. The decline of the
EURUSD to 1.05000-1.05500 was used to close half of the trade. The other half
should be closed at 1.05000-1.06000 considering recent developments.