The S&P
500 broad market index rose by 2.5% to the heartbreaking 4511 points. Brent
crude prices jumped by 3.8% to $81.20 per barrel, while the U.S. Dollar is
recovering from its extreme weekly drop of 2.5% to its 15-month lows.
It was hard
to expect such high volatility in usually indolent July, but the U.S. inflation
data agitated investors. The Consumer Price Index (CPI) in the United States at
3.0% YoY missed Wall Street expectations at 3.1%, which was far lower than 4.0%
YoY in May. Producer Price Index (PPI) dived sharply to 0.1% YoY in June from
0.9% YoY in May, or to the lowest since 2020 level, which was way before the global
inflation tsunami. So, investor overreacted in the first moment, but the enthusiasm
faded by the end of the week.
Yields were
sharply down as many believe the Federal Reserve (Fed) has to stop rate hiking at
once with a sooner than expected lowering interest rates. Investors are certain
the Fed would rise its interest rates by 0.25 percentage points in July, but
would be forced to decrease them in March 2024, earlier than anticipated May
2024. Lower yields have made debt yield curve inversion much tighter. The speed
of this contraction was the same that was seen in April 2022 as S&P 500
index made a sharp correction, and close to the speed that was witnessed during
the banking crisis in the United States this March. This week the contraction
slowed down. Putting it to the perspective if the inversion would continue to
get the tightening momentum a serious stress in the markets could be expected
next week. Thus, this situation should be monitored very closely.
The Q2 2023
earnings reporting season is seen in rather negative angle. FactSet, which is
tracking the corporate performance and providing market analysis, expect that
S&P 500 listed companies, will lose 7.2% YoY of their profit, the largest
contraction since Q2 2020. So, investors might be very disappointed with these
negative developments amid Fed decision to hike its interest rates in July.
The
stepping down of the St. Louis Federal Reserve President James Bullard,
who is leading the hawkish camp of the regulator, is seen in a very different
reflection now. Mr. Bullard is a bright economist, and he was acting as such
when voting on interest rates changes, putting away any political issues. His resignation
may point to a unusual dovish shift in the Fed’s rhetoric, which he was opposed
to.
Technically,
the S&P 500 index continues to have an upside formation with targets at
4250-4350 points, that have already been met. The market has failed to pass the
support at 4340-4360 points and bounced back towards the resistance at 4440-4460
points in the begging of the week, but latter it gained additional traction to
the extreme targets at 4550-4460 points. The downside signal was not completely
formed, while there are still some incentives for this signal to be completed.
Brent crude
prices passed the resistance at $76-78 per barrel after Organisation for
Petroleum Exporting Countries (OPEC) and its allies demonstrated commitment to
continue with production cuts. This made Brent prices to go up towards the
resistance at $86-88 per barrel. Once this ceiling would be reached the recession
scenario might be activated. Its first targets are at $67-69 per barrel of
Brent crude.
Gold prices
are moving inside the mid-term upside formation with targets at $2000-2100 per
troy ounce that have already been met. But the situation has changed
dramatically as the important support level of $1980-2000 per ounce was
smashed. Short positions were opened after prices tested the $1970-1980 former
support level with targets at $1890-1910 per ounce. The first half of this
trade was closed at $1910 per ounce, while the second half was left open with
the stop-loss order moving to $1980 to avoid any losses, and amid expectations
of some extra profit. When prices would pass the $1900 per ounce level this
downside scenario will be activated.
The
Greenback fell to its 15-month lows after inflation in the United States was
reported much lower in June. The rising real interest rates were contributing
to this. Thus, even mid-term long positions for the U.S. Dollar are seen not to
be appropriate. It would be better to wait for a decline of the EURUSD below
1.06000 to seek out sell opportunities for the Greenback.
Two major
positions were opened for July. First, is a short position for the EURUSD at
1.08900-1.09200 with the take profit and stop loss both set at 5000 points from
the opening price. A long trade for the AUDUSD was opened from 0.66400-066600
with the same size of the stop loss and take profit orders as for the EURUSD.
Two operations balance each other and should be kept to mitigate risks.
The overheated
rally in the EURUSD this week opened a nice opportunity for the pair to go
short towards 1.10700-1.11000. So, short operations from 1.12300-1.12500 with
the target at 1.10900 and stop loss order at 1.13100 are seen very attractive.