The S&P 500 futures are showing signs of
recovery, gaining 0.8% to reach 5452 points after a steep 4.5% decline last
week, marking the worst performance since September 2022. The recent drop was
largely driven by disappointing U.S. labor market data for August. Nonfarm
Payrolls fell short of expectations at 142,000 (vs. the 164,000 consensus), and
previous months' data were revised downward. While unemployment edged down to
4.2%, downward revisions in earlier reports have added to concerns.
The report led to a dip in U.S. 10-year
Treasury yields, now at 3.64%, but surprisingly, expectations for a 0.50
percentage point rate cut by the Federal Reserve in September decreased to 25%,
despite growing recession fears. Investors are now pricing in three rate cuts
by the end of 2024, with political and economic dynamics possibly influencing
decisions, especially with upcoming elections.
Interest
rates curve between U.S. 10-year and 2-year debt is now rapidly normalizing
after been inverted. This is usually a bold sign of upcoming crisis. Investors
believe it could hit this autumn forcing the Fed to cut interest rates rapidly
to 4.25% in December from the existing 5.50%. This scenario could explain why
large investors are selling stocks for the sixth consecutive weeks.
The SPDR
S&P 500 ETF Trust (SPY) reported $943.3 million net outflows last week
excluding Friday, much less than $3.9 billion during the last week of August.
This manifests expectations of deep correction by large investors. The S&P
500 index changed its formation to the downside with targets at 5200-5300
points. The index may dive even lower to 4700-4900 points, which is a 15.0%
correction. This scenario should be kept in mind before large investors start
buying again.
This week inflation
data for August will be released in the United States. A trend towards further
decline of inflation is confirmed by falling oil prices. The European Central Bank
(ECB) is expected to cut interest rates this week that could weaken the Euro
and support stocks to some extent. Presidential debate between Republican
Donald Trump and Democrat Kamala Harris could become a wild card this week.
Technically, the
S&P 500 index has changed its formation to the downside with primary downside
targets of 5200-5300 points by October 10-11. The situation could be rapidly
evolving pushing the index down to 5470-5490 points. If this level would be passed,
the index could dive even further to 5370-5390 points.
Brent crude oil prices
fell to the support at $70.00-72.00 per barrel. The period favorable for an oil
price decreased has started, making a decline to the support highly likely. The
Organization of the Petroleum Exporting countries and its allies (OPEC+) has
decided to postpone production increases by December. This has provided some
support for price recovery.. The nearest resistance level is at $79.00-81.00
per barrel.
Gold has achieved its
mid-term targets of $2,000-2,100 per ounce and could further consolidate within
the $2,400-2,500 range. Investors are trying to push prices higher above $2,490-2,510
per ounce resistance. But, these efforts are seen unsuccessful now. The next
strong resistance is at $2,600 per ounce. However, there are no strong reasons
for a sustained rally. The immediate support for gold is at $2,390-2,410.
The EURUSD has
returned to its primary upside targets of 1.10000-1.11000. Extreme technical
overbought tensions has been removed. The pair is heading down to 1.10000. If
the support fails, the pair could fall towards 1.05000-1.07000. Alternatively,
the pair may rise above the resistance at 1.11000 to the extreme targets at
1.14000-1.15000.