S&P 500 broad market index futures dropped
by 3.0% to 4971 points this week. The benchmark went even lower to 4927 points,
the lowest since February 13. This correction happened after Israel carried out
a strike on Iran. Curiously, Iran said that there was no missile strike, but
local air defense systems. Explosions were heard near Isfahan International
Airport and an army base in Isfahan city.
The initial market reaction was very strong.
Brent crude prices jumped by 4.4% to $90.80 per barrel. Gold went up by 1.7% to
$2417 per troy ounce. U.S. 10-year Treasuries yields dropped to 4.51%, while
the Dollar added 0.3%.
Prices have later stabilized as no strikes
were made on Iran's nuclear sites. The S&P 500 index, however, is lagging
behind, and it was still down by 0.4% before the opening of the European
trading session. This highlights the weakness of the stock market.
U.S. retail sales for March added 0.7% MoM,
beating the forecast at 0.4% MoM, while jobless claims rose slightly. This
strong data was offset by a 14.7% drop in housing starts in March, the worst
performance in the last five months. Federal Reserve (Fed) officials made some
hawkish comments during the week supporting debt yields. Bets on interest rate
cuts by the Fed were almost unchanged at 21.6% for June, 41.3% for July, and
45.2% for September.
Q1 corporate earnings reports provided some
support for the stock market, but this data was mostly priced in by the market.
Netflix (NFLX) reported moderate results, but its stocks lost 4.8% on the news.
Other companies from the “Magnificent Seven” will report next week. The SPDR
S&P 500 ETF Trust (SPY) revised net capital outflows to $9.3 billion from
previously reported $2.6 billion. This is the largest outflow since
mid-January. This week the fund lost another $1.7 billion. It seems that
investors are abandoning stocks for now.
Investors will wait for any further escalation
between Iran and Israel over the weekend, but it seems that both sides are
satisfied with their response and the tensions should be easing. Nevertheless,
some risks of escalations are on the table, particularly before next Tuesday
when investors will pay more attention to U.S. Q1 2024 GDP, PMIs, and PCE data.
Technically, the
S&P 500 index has entered a potential correction phase, with monitoring of
reversal patterns advisable. The market has performed a 6.8% correction and may
recover next week. The market may now move higher to the new extreme targets at
4400-4500 points.
Oil prices retreated
to $86.20 per barrel of Brent crude, but temporary recovered to $90.80 per
barrel. They have resumed a decline on Friday. This shows a strength of the resistance
at $92.00 despite geopolitical crisis in the Middle East. So, the path to $100
per barrel is currently blocked, and downward pressure is expected to continue
in the near term. The support is located 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 $2431 per ounce. A technical period favorable for upside scenarios will
start next week and will last by mid-June. But prices are too high already, and
consolidation could be expected. The nearest support is at $2290-2310.
The EURUSD recovered to
1.06800-1.06900, and bounced back. 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.