The S&P 500 broad market index futures
demonstrated resilience by only edging lower by 0.2% to 5191 points, despite
facing higher-than-expected inflation and rising borrowing costs in the United
States. Following a 1.4% decline on Wednesday and Thursday to the support level
at 5110-5130, the benchmark managed to recover later in the week.
March's Consumer Price Index (CPI) revealed a
3.5% year-on-year increase, surpassing expectations of 3.4% and marking the
highest level since September 2023. This surge in inflation pushed U.S. 10-year
Treasuries yields to 4.59%, the highest since November 14, and significantly
decreased bets on interest rate cuts by the Federal Reserve (Fed) in June to
16.1%.
Given the substantial borrowing costs
observed, there's a historical context to consider. Last November, the S&P
500 index was at 4500-4600 points, suggesting a potential 11.0-12.0% correction
for the index. However, the benchmark only experienced a modest 1.2% loss on
the news. The Producer Price Index (PPI) provided some relief, as it turned out
to be somewhat optimistic compared to CPI, with PPI rising to 2.1% versus a
consensus of 2.2%.
Investors have now shifted their attention to
the upcoming corporate reporting season, set to commence on Friday. There's a
prevailing belief that strong corporate profits will buoy stocks despite the
prevailing high borrowing costs. Major players in the U.S. banking sector, such
as JPMorgan (JPM), Wells Fargo (WFC), Citigroup (C), and BlackRock (BLK), will
be among the first to report. Consensus forecasts anticipate a 3.8% increase in
corporate profits for S&P 500 listed companies in Q1 2024.
Technically, the
S&P 500 index has surpassed the final upside target zone at 4850-4950
points and entered a period of potential correction opportunities. Therefore,
monitoring any reversal patterns that may emerge on the chart is advisable. The
existing reversal pattern suggests a standard correction of 5-7%, with
potential downside opportunities possibly emerging soon. The market is craving
for correction, but when it could start remain unclear. May be it is has
already started. If the S&P 500 index drops below 5050 points this scenario
would become a primary one. The nearest resistance is at 5230 points, while
support is at 5110-5130 points.
Oil prices are testing
the resistance at $92.00 per barrel of Brent crude. If it fails to hold prices
amid increasing geopolitical tensions in the Middle East it may continue up to
the next resistance at $100 per barrel. From a technical standpoint, downward
pressure prevails in the market, expected to continue throughout mid-May.
Therefore, a breakthrough is unlikely. The nearest support is at $81.00-83.00
per barrel.
Gold prices, having
reached mid-term upside targets at $2000-2100 per troy ounce and extreme
targets at $2400-2500, established a new all-time high close to the resistance
level at $2400 per ounce. A technical period favorable for downside scenarios is
almost over. Investors are dragging gold prices up. The nearest support is at
$2290-2310.
The currency market continues
to experience high volatility. Higher-than-expected inflation data in the
United States finally shaped the direction of the market in favour of the
Dollar. The EURUSD lost 1.5% to 1.06740. The EURUSD is heading to 1.05000. The
nearest downside target is at 1.05500-1.05800. There is a risk of Bank of Japan
interventions to support the Yen that may cancel this scenario.