The
S&P 500 broad market index futures dropped by 1.5% to 5226 points this
week. The nearest support has edged higher to 5260-5280 points, but the
benchmark is currently below this range. Failure to recover above the support
level may lead to a further decline to 5160-5180 points, a critical level. A
breach below this level could accelerate the downward movement towards
4900-5000 points.
A major
surprise this week was the weak debt auction by the U.S. Treasury Department on
Tuesday, which caused benchmark 10-year debt yields to spike to 4.63%, the
highest level in May, and close to the 4.65% highs seen in November 2023. Any
further increase could be very dangerous. This situation highlighted the
fragility of bets on further monetary easing by the Federal Reserve (Fed) this
year. According to the CME FedWatch Tool, bets on interest rate cuts by the Fed
in September dropped to 40.0% on Wednesday from 46.0% at the start of the week.
With the U.S. Treasury planning larger auctions this year, investor demand for
higher yields could result in the Fed maintaining high interest rates through
the end of the year.
Market
sentiment improved following the release of the second estimate of Q1 GDP in
the United States, which showed a further slowdown to 1.3% QoQ from 1.6% in the
first estimate. This eased pressures on the debt market, with 10-year benchmark
debt yields rolling back to 4.55%, and bets on interest rate cuts by the Fed in
September recovering to 43.6%.
Investors
are now looking to the April PCE index in the U.S. to finalize this trading
week. Any deviations from the expected unchanged index could provoke a strong
market reaction.
Next week
will feature important meetings from the European Central Bank (ECB) and the
Bank of Canada (BoC), which may initiate a series of interest rate cuts in
developed nations. Additionally, Nonfarm Payrolls data next Friday could guide
the Fed's upcoming monetary policy decisions in June.
From a
technical perspective, the S&P 500 index remains within a fragile upward
formation, having met targets at 5250-5350 points. Extreme targets lie at
5650-5750 points, though these levels seem unrealistic in the near term. A
climb above 5370 points would signal this scenario starting to materialise.
Immediate resistance is at 5350-5370 points, with support at 5160-5180 points.
Oil
prices were impacted by weak economic data from the U.S. and China, with China
releasing weak May PMIs on Friday. The upcoming meeting of the Organization of
Petroleum Exporting Countries and its allies (OPEC+) has to provide some support
for oil prices. Otherwise, prices may slip below the support at $80.00-82.00
per barrel of Brent crude, with the nearest resistance at $89.00-91.00.
Gold
prices, after reaching mid-term upside targets at $2000-2100 per troy ounce
were seeking extreme targets at $2400-2500. There is limited room for further
price increases, and pullback options may soon become available. The nearest
support is at $2290-2310, with a breakthrough potentially leading to a deeper
correction. Immediate resistance is located at $2390-2410.
The U.S.
Dollar continues to struggle to break through the EURUSD support at
1.08000-1.08200. Primary upside targets at 1.08950 have been met. If the pair
slips below 1.08000, a drop to 1.05000 should not be excluded in the mid-term.