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Weekly Summary: S&P 500 Flying High Ahead of Nonfarm Payrolls

The S&P 500 broad market index futures are rising by 1.4% to 5362 points, marking a new all-time high. This positions the benchmark to test the resistance at 5360-5380 points. If surpassed, the index could climb towards the extreme targets of 5650-5670 points.

The rally in the S&P 500 index appears logical, as investors have been seeking positive reasons for an upside throughout the week. Focus was on the ISM version of the Manufacturing PMI, which indicated a drop in business activity to 48.7 points in May, while data from S&P Global, indicating an expansion of the sector, was largely ignored. The Atlanta Federal Reserve (Fed) GDPNow model forecasts a sharp decline in Q2 GDP to 1.8% from 2.7%, confirming the idea of an American economic slowdown. U.S. May services PMIs, released on Wednesday, displayed strong expansion in the sector. The ISM reported service PMI rose to 61.2, a record since November 2022. However, weak Nonfarm Payrolls from ADP, which dropped to 152,000 from 188,000, confirmed the cooling of the American economy, supporting stocks.

U.S. 10-year Treasury yields dropped to 4.26% from 4.50%, while bets on interest rate cuts by the Fed in September increased to 57.35% from 45.1%, according to the CME FedWatch Tool. This seems to inspire, but investors are not eager to join the rally. The SPDR S&P 500 ETF Trust (SPY) reported fund outflows of $3.3 billion this week.

From an optimistic standpoint, investors are not willing to take risks before the Fed meeting next week. A pessimistic scenario suggests that weak PMIs and possible hawkish rhetoric from the regulator may hamper the rally in stocks. The resistance at 5360-5380 points will be a crucial milestone. If surpassed, investors are likely to initiate new long positions.

Two more reports ahead of the Fed meeting will provide clues for the regulator. May Nonfarm Payrolls in the United States are expected to rise to 182,000 from 175,000 in April. The unemployment rate is forecasted to remain unchanged at 3.9%, while hourly earnings are expected to increase to 0.3% MoM from 0.2%. Nonfarm Payrolls could be stronger than consensus. Our statistical modeling shows the figure within the 182,000-194,000 range.

Though it is not the strongest labour market report, it could prompt the Fed to continue with its hawkish stance. If the decision is disappointing, the S&P 500 index could roll back, and the Greenback would strengthen.

From a technical perspective, the S&P 500 index outlook is mixed. The index has met its primary targets at 5250-5350 points and is now trying to break through towards extreme targets at 5650-5750 points, though these levels seem unrealistic in the near term. A climb above 5380 points would signal this scenario starting to materialise. Immediate resistance is at 5360-5380 points, with support at 5260-5280 points.

Oil prices slightly recovered but are still in the red zone, hovering around $80.00 per barrel of Brent crude. OPEC+ plans to increase oil production in October sent oil prices down. The support is at $80.00-82.00 per barrel of Brent crude, with a risk of falling towards $70.00 if this support level is breached. The nearest resistance is at $89.00-91.00.

Gold prices, after reaching mid-term targets at $2000-2100 per troy ounce, are seeking extreme targets at $2400-2500. There is limited room for further increases, and a pullback could soon occur. For a downside scenario to materialise, the support at $2290-2310 must be breached. Immediate resistance is at $2390-2410.

The U.S. Dollar continues to struggle to break through the EUR/USD 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 could occur in the mid-term.