• Main
  • Analytics
  • Market Reviews
  • Weekly Summary: Markets are Adjusting ahead of Drastic Moves

Weekly Summary: Markets are Adjusting ahead of Drastic Moves

The S&P 500 broad market index futures rose by 0.4% to 5106 points this week. Though, the benchmark could establish another all-time high on Friday, which is currently at 5111 points.

Despite several significant factors, the week remained relatively calm, evident in the debt market where U.S. 10-year Treasury yields fluctuated within the narrow range of 4.25-2.31%. Markets were calmly rippled. Bets on interest rates cuts by the Federal Reserve (Fed) in March, May and June were fluctuating by 1.0-2.0 percentage points, according to CME FedWatch Tool.

It seems that markets are preparing to experience drastic moves in March. Even Fed officials Federal Reserve Bank of New York President John Williams, San Francisco Fed president Mary Daly, Atlanta Fed President Raphael Bostic and others were reiterating the same mantra that the regulator may cut its interest rates when needed, but so far the U.S. economy is strong. This is a rather neutral position that could hardly be disputed.

The markets appear to be gearing up for potential drastic moves in March, with Fed officials maintaining a neutral stance, acknowledging the possibility of rate cuts if needed while emphasizing the strength of the U.S. economy. After weak January retail sales Durable Goods Orders plummeted by 6.1% MoM, the largest drop since the pandemic April 2020. The U.S. Q4 2023 GDP was revised down to 3.2% QoQ from 3.3%. The Q1 2024 GDP is expected to rise by 3.0% vs previously estimated 3.2%, according to Atlanta Fed GDPNow modeling. The U.S. labour market seem to show some sings of strains as the number of jobless claims rose to 1905,000 vs 1860,000 in a previous week. Initial jobless claims jumped to 215,000 from 202,000 a week before. The Fed’s favorite inflation gauge, the PCE Index slowed down to 2.4% in January from 2.6% in December.

Still, it would be premature to judge the pace of the cooling of the American economy. Investors should closely monitor incoming data that could be translated later in Fed’s decisions. Next Friday the U.S. labour market report for February will be released. Wall Street expects a weaker Nonfarm Payrolls. The European Central Bank (ECB) will hold its monetary policy meeting, but it would hardly make the first move to cut the rates ahead of the Fed. The rhetoric of the ECB policymakers would be still interesting to scrutiny regarding possible terms of monetary easing process in Europe.

The S&P 500 has surpassed the final upside target zone at 4850-4950 points and missed potential correction opportunities. Betting on a rally before a correction could be risky, and reversal patterns are anticipated, with the first already emerging, signaling a standard correction of 5-7% within the next five weeks. The starting point of this correction is yet to be defined, but the next downside opportunities are likely to emerge by the end of March. The nearest resistance is at 5080-5100 points, while support is at 4990-5000 points.

Oil prices are mostly flat. Traders are trying to kick prices over the resistance at $81.00-83.00 per barrel for Brent crude, but speculations over on a possible ceasefire in the Middle East is dragging crude prices down. OPEC+ is expected to make its move next week. The cartel and its allies are rumoured to extend 2.2 million bpd production cuts into the Q2 2024. Chances of further upside moves in oil prices above $83.00 per barrel in March are high, with the next resistance located at $87.00-92.00 per barrel.

Gold prices, having reached mid-term upside targets at $2000-2100 per troy ounce, are currently retesting the resistance at $2010-2030 per ounce from the downside. Prices rose to $2045, but are unlikely to hold at this level for a long time. In this scenario, prices could slip to $1920 and further down.

The currency market is moving flat, with expectations of another wave of the upcoming downside correction for the Dollar on hold. Nonfarm Payrolls data and the ECB meeting next week could bring more activity to the market. It remains risky to bet on both the rising and declining EURUSD, with a return to the 1.11500-1.12500 area likely, but a drop to 1.05000 should not be excluded.