The busiest week of the month has begun. The U.S. Consumer Price Index (CPI) for
November will be released on Tuesday. The Federal Reserve (Fed) will have its
meeting on Wednesday. The following day European Central Bank (ECB) and Bank of
England (BoE) will also have their meetings.
A brief introduction suffices to approach the
next five trading days with caution and attention. The stronger-than-expected
U.S. labour market report last Friday has added an extra layer of caution,
heightening the risks of a correction in the stock market. The American economy
generated 199,000 new jobs outside the agricultural sector in November,
surpassing the consensus of 180,000 and well above the ADP calculation of
103,000. The unemployment rate dropped to 3.7%, surprising investors who
anticipated it to remain at 3.9%. Average hourly earnings increased by 0.4%
last month, exceeding the consensus of 0.3%.
The reasons for this disappointment become
evident when examining the change in Nonfarm Payrolls on a cross-sectional
basis. The private sector created 150,000 new jobs against the forecasted
153,000, while the remaining 49,000 were added by the public sector. With this
understanding, investors have slightly reduced their bets on Fed’s interest
rate cuts in March, down to 42% from 43%. Conversely, they have propelled the
S&P 500 broad market index to the March 2022 highs at 4611 points.
Determining the extent to which stronger
employment and rising wages contributed to inflation in November is
challenging, but it is undoubtedly a pro-inflation factor. However, crude
prices experienced a significant decline last month, alleviating inflation
pressures. Consensus expectations for inflation stand at 3.1% YoY, compared to
3.2% YoY in October. Some tension may arise from the Core CPI, which excludes
volatile food and energy prices and could rise to 0.3% from 0.2%. Indeed, a lower unemployment level could make such contribution. So, investors have to be prepared for extra
volatility on Tuesday. Any signs of accelerated inflation may prompt the Fed to
issue a hawkish statement on Wednesday. While the Fed's Fund rates are highly
likely to remain at 5.50%, the tone of Fed Chair Jerome Powell may lean towards
the hawkish side. This combination of inflation data and the Fed meeting poses
a significant threat to the markets. However, if inflation aligns with
expectations, Powell may adopt a moderately hawkish tone, making it easier for
investors to navigate without a major correction in the S&P 500 index.
meetings of the ECB and BoE are comparatively more predictable and therefore
less crucial. Christine Lagarde, the President of the ECB, is anticipated to
signal an early dovish shift in monetary policy due to challenges facing the
Eurozone economy. On the contrary, the Bank of England is expected to maintain
its tight policy owing to high domestic pro-inflation risks.
the S&P 500 index is accommodating itself in a secure territory. The weekly
resistance has moved to 4750 points. There are some risks of the decline of the
index to the nearest support at 4540-4560 points this week. The second half of
the week looks more optimistic though.
to be losing ground despite an additional 1 million bpd production cut. Crude
prices are decreasing, contrary to the usual trend following such cuts.
Typically, such cuts resulted in a 30% rise of crude prices in the following
months. This time a consolidation of Brent crude prices below the resistance at
$83.00-85.00 per barrel translated into a decline towards the nearest support
is at $74.00-76.00 per barrel. The next support is located at $65 per barrel. Prices
are trying to hold themselves above the support to recover.
are moving inside the mid-term upside formation with targets at $2000-2100 per
troy ounce that have already been met. Prices broke through the resistance at
$2100 per ounce to $2141 level and rolled backed to the nearest support is at
$1990-2010 per ounce. Prices are rolling back pushed down by a technical
weakness period that will last by mid-January potentially leading gold prices
below $2000 per ounce.
Greenback moved lower its primary correction targets at 1.08500-1.09500 against
the Euro to 1.07800. Further correction is tied to the prospect of a Christmas
stock rally. In this scenario, the EURUSD may rise towards 1.12000-1.13000.
Alternatively, the Greenback could resume its strengthening towards parity with