The S&P 500
futures have surged by 4.0% to 5607 points, edging closer to the all-time high
of 5670. Stocks are rapidly climbing, similar to early August, after an initial
10% decline. This time, the correction was only 4.8%. The primary catalyst was
August's U.S. inflation data, which showed a Consumer Price Index (CPI)
increase of only 2.5% YoY, down from 2.9% in July, marking the lowest level
since March 2021. This decline is seen as a potential prompt for the Federal
Reserve to cut interest rates in its upcoming meeting.
However,
the reaction on this data was rather strange. The S&P 500 index climbed by
2.0% before the release and erased almost all of its gains to 0.2% straight
after the release on Wednesday to post a 3.0% rise by the end of the day.
Initial disappointment
could be related to the Core CPI that remained stubborn at 3.2% YoY. This index
is calculated without food and energy prices. This raises concerns that the
decline in inflation was achieved exclusively by falling oil prices. This could
prompt the initial sell-off in the stock market. But, together with this data
bets on interest rates cuts by 0.50 percentage points the Fed in September dropped
to 13.0% from 30.0%. This has now became a major indicator of recession fears.
So, they have sharply decreased after the new inflation data came in. This
sounds rather weird, and could be attributed rather to an algorithmic trading,
at least considering first few hours after the release.
Moreover, August
Producer prices in the U.S. rose to 2.4% MoM form 2.3% in July demonstrating a
decline to 1.7% YoY. This figures reminiscent the same correlation within
consumer prices. Nonetheless, the S&P 500 index extended its weekly growth
to 3.7%, while bets on interest rates cuts by 0.50% by the Fed in September jumped
to 45.0%. This is a huge overestimate that happened after former New York Fed
President William Dudley said that a half-point rate cut is needed in September
amid deteriorating labour market conditions in the U.S. Despite a huge jump in bets,
S&P 500 index kept its gains and added another 0.22% early Friday.
The SPDR
S&P 500 ETF Trust (SPY) reported net fund inflows of $800 million during
the first three days of the week, including net outflow of $2.7 billion on Wednesday
alone. This could mean that large investors believed Dudley. However, there is almost
no room for opening new long positions for the S&P 500 index, as it is very
close to its historical records. It has almost hit its primary upside target at
5700-5800 points. So, it is a bad idea to open long trades before the Fed
meeting, when the index is close to its records.
Technically, the
S&P 500 index has changed its formation to the upside with primary upside targets
of 5700-5800 points. 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. If the index holds above the resistance at
5610 points it could continue up towards 5690-5710 points. The nearest support
is at 5490-5510 points.
Brent crude oil prices
fell to the support at $70.00-72.00 per barrel and are now recovering. 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 have pushed through the resistance at $2,490-2,510
per ounce. If no reversal will occur after the Fed meeting next week prices
could continue to rise towards $2,700-2,800 per ounce, and possibly further up
to $3,200-3,300 per ounce.
The EURUSD has
returned to its primary upside targets of 1.10000-1.11000. Extreme technical
overbought tensions has been removed. The pair is recovering to 1.11000. The
pair has higher chances to break through the support at 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.