S&P 500 broad market index futures are
retreating by 0.5% to 5723 points on Monday, following a strong performance
last week, where the benchmark managed to close 0.3% higher.
The U.S. September labour market report
remains a key driver of optimism, with Nonfarm Payrolls significantly exceeding
expectations at 254,000 against a consensus of 147,000. Unemployment fell to
4.1%, lower than the anticipated 4.2%. U.S. 10-year Treasury yields climbed to
3.99% from 3.87% and continued rising to 4.00% on Monday. The probability of a
half-point interest rate cut by the Federal Reserve (Fed) in November has now
levelled at 0%, while a quarter-point cut is viewed as highly likely at 93.1%.
However, some investors still believe the rates could remain unchanged at 5.0%.
There is growing speculation that the Fed’s
half-point rate cut in September might have been politically motivated,
especially in the absence of a major stock market correction. This has drawn
scrutiny, with even Democrats suggesting that Fed Chair Jerome Powell’s actions
may have had political undertones.
Despite this, the S&P 500 index is likely
to maintain its upward momentum, buoyed by positive macroeconomic data. The
Federal Open Market Committee (FOMC) will release its Minutes on Wednesday,
which will provide further insight into the rationale behind September's rate
cut. Additionally, September inflation is expected to ease to 2.3% YoY from
2.5%, which could push the S&P 500 higher. Producer prices are also
forecasted to slow down, though this is unlikely to have a major impact on the
markets. Investors will be keeping an eye on the upcoming Q3 corporate earnings
season, with JPMorgan (JPM) and Wells Fargo (WFC) reporting first. Wall Street
expects average profit growth of 4.7%, the smallest increase since Q4 2023.
Large investors have been positioning
themselves for the next move. The SPDR S&P 500 ETF Trust (SPY) saw net
outflows of $1.0 billion last week, except on Friday, when inflows were likely
prompted by the positive U.S. labour market report. Nevertheless, large
investors are still bullish, with $19.8 billion worth of bets placed on the
market continuing its upward trend.
Technically, caution is advised as the S&P
500 has reached its primary target of 5700-5800 points. This week, the index
has entered a potential reversal zone. If the index breaks above 5810 points,
it could continue its upward trajectory towards the extreme targets of
6100-6200 points.
Brent crude oil prices
surged above $79.00 per barrel, with OPEC+ deciding to postpone production
increases until December and Saudi Arabia threatening to raise oil production. Potential
for an escalation of the Iran-Israel conflict is driving prices higher to ,
with Brent aiming for a resistance at $89.00-91.00 per barrel.
Gold prices have
reached mid-term targets of $2,000-2,100 per ounce and are now pushing towards
higher resistance levels at $2,750-2,770. If no reversal occurs, gold could
continue its rise towards $2,850 per ounce, with potential to hit extreme
targets of $3,200-3,300 per ounce.
In the
currency market, the EURUSD pair
is hovering below key support at 1.10000. However, it is too early to bet on
the dollar strengthening. A breach of this support could lead the pair down to
the 1.05000-1.07000 range, while a rise above 1.11000 may signal a potential
rebound.