Markets are struggling ahead of the April labour market data publication. The S&P 500 broad market index fell by 2.3% to 4077 points despite quite positive results of the Federal Reserve (Fed) and European Central Bank (ECB) meetings this week. Both regulators raised their interest rates by 0.25 percentage points, which were expected by investors.
These decisions were very inspiring as both the Fed and ECB signaled a possible pause after the most recent rise in rates. The Fed seems to be the first that will take a break in June and possibly beyond, while the ECB is likely to follow with some delay. However, the market needs more to resume the rally. Investors are trying to front run the Fed as they bet the watchdog may start decreasing its interest rates in July or September this year. But that bets were spoiled by a new chapter of the banking crisis in the United States, where PacWest Bancorp (PACW.O) and Western Alliance Bancorp (WAL.N) emerged as new candidates for bankruptcy. These are smaller regional banks compared to Silicon Valley Bank (SVB) and First Republic Bank (FRC) that collapsed in March. But they are big enough to remind investors that the banking crisis is far from being over.
The American Bankers Association urged U.S. Securities and Exchange Commission (SEC) to reduce ‘abusive’ trading as many regional banks’ stocks became a subject of significant short sales. This sounds absurd as markets are now performing regulators actions, highlighting the weaknesses of the banking system before it would be too late for the Federal Deposit Insurance Corporation (FDIC) or even the Fed to interfere. PacWest Bancorp (PACW.O) and Western Alliance Bancorp (WAL.N) are unlikely to resuce themselves. So, it would be better to address FDIC promptly to get guarantees need to be acquired by some of the U.S. large banks.
Meanwhile, investors are waiting for another portion of the labour data for April that will be released today. This data may indicate whether the Fed will end interest rate hikes or if it will be just a break for the watchdog. The second portion of the vital data will be released next week, when April Consumer Price Index will be published.
Our statistical modeling for Non-Farm Payrolls is optimistic with a possible 270,000 jobs created in the American economy, better than 180,000 consensus. The same optimism could be attribute to the unemployment level which is seen to be unchanged at 3.5% after initial jobless claims rose by 50,000 in April. Consensus suggests that the unemployment level could edge higher to 3.6%.
Technically, the S&P 500 index has an upside formation with targets at 4500-4600 points. The index is resting slightly above the support level of 4050-4070. It may recover to 4150-4170 points if this support survives. Otherwise, it is likely to continue down towards 3950-3970 points.
The recession scenario chances are rising in the oil market as Brent crude prices continue to tumble towards $40-60 per barrel, which is the recession target. Prices went below the support at $77.00-79.00 per barrel and are moving down to the $67.00-69.00 level per barrel. Once they breakthrough this level they may accelerate further down. However, this will largely depend of the efforts of the Organisation of the Petroleum Exporting Countries and its allies, known as OPEC+, to stabilise prices.
Gold prices are moving inside the mid-term upside formation with targets at $2000-2100 per troy ounce that have already been met. Prices rebounded from the support level at $1980-2000 per ounce, targeting the resistance at $2070-2090. They are very close. So, investors should wait for the price to cross the resistance and take appropriate actions afterwards, considering a likely deep correction may follow.
The monetary market situation is complicated. Short trades for EURUSD opened at 1.06700-1.07200 with a downside target at 5000 points below the opening level and the same 5000 points for a stop-loss order are intact. The decline of the EURUSD to 1.05000-1.05500 was used to close half of the trade. The other half should be closed at 1.05000-1.06000 considering recent developments.