The decline
of stock markets continued as throughout the week there was a feeling spiraling
problems. First it was a possible Government shutdown in the United States,
even they caused only a 4% decline in
the market in average in the last 42 years, while median dynamics of
S&P 500 broad market index was around 0% for this period.
Major
troublemaker is the debt limit problem in the United States as the government
would ran out of money by October 18, according to U.S. Treasury Secretary
Janet Yellen. By reaching this date, United States may declare its first
default ever, it the debt burden would not be lifted by then. However, the
market does not believe in this scenario as it would practically mean the end
of America-centered global financial system as we know it. Moreover, irreconcilable
Republicans and Democrats had no slowdowns on keeping the U.S. government open by
December 3 despite postponing a vote on Joe Biden’s massive $1 trillion
infrastructure bill. So, it is almost inconceivable that they would have any
troubles on lifting the debt ceiling.
More
attractive matter is the energy crisis in some Chinese provinces, where
governments imposed tight limits on energy consumption. Some experts believe
that this is some kind of sabotage from the local governments to disconsider
central government in Beijing. Western media believe this is a coincidence of
high energy prices on crude, coal and natural gas along with strict central
government directions on green economy accompanied by slowing down production.
The
situations seem to be complex as with the Chinese developer Evergrande that has
missed another payment of $47.5 million on its debt on September 29. Rising
energy prices may provoke the Federal Reserve (Fed) for early tapering of its
monthly $120 billion bond-buying program, increasing possibility of market
plunge.
The Federal
Reserve Chairman Jerome Powell is adding fuel to the fire expressing his
anxiety or even fear over sustainable inflation that he earlier called
transitory. Investors don’t believe Powell now as he literally enshrined
transitory regarding inflation. So, when he says the opposite investors
consider it as some expansion of transitory inflation but not as confession of
the Fed that it is losing control over inflation.
In this
regards investors are more convinced of a temporary market correction at the
moment and not of the upward trend reversal. Although the upward trend in the
stock market seem to be over. Nevertheless, the majority might be right as the
S&P 500 index is far above the moving 200-days average that usually used as
a trigger for large hedge funds algorithms. This moving average is now at 4145
points. Anyway, this time it is too early to rush.
Technical picture
suggests the decline of S&P 500 index towards 4100-4200 points, and only at
those levels it would be reasonable to try some buy positions in case of
confirmation signals appearance. So far, we may see further decline of the
index.
Crude
prices are consolidating after surging above $80 per barrel of Brent crude
benchmark. Prices may remain within $80 per barrel until Monday when OPEC+ is
going to announce its decision over further production increase. Base scenario
suggests lifting quotas by another 400,000 barrels per day. However, White
House Administration is pressing OPEC to consider substantial increase in
production. Last time the U.S. policymakers were so active in crude market was
in mid-summer 2021 pushing prices down by 17%. This time something similar may
happen and prices may drop to $74-76 per barrel area.
Gold prices
are trying to hold on at $1750 per troy ounce. The yield on 10-year U.S.
Treasuries dropped a little making the room for gold prices to take a breather.
Nevertheless, strengthening Greenback and rising yield on U.S. debt would
eventually push gold prices down to $1550-1650 per troy ounce.
The
Greenback is celebrating victory over all other currencies. The EURUSD fell to
1.15800 after the recent elections in Germany with the uncertainty over future
government and possible loose fiscal policy. However, there is less room for
the Dollar to strengthen any further at the moment. So, we may expect a rebound
or at least a consolidation at the current level.
GBPUSD is
diving deeper reaching the bottom support of 1.34500-1.35500. We may expect a
consolidation at this level or rebound by 500-700 points.