S&P 500 futures dropped by 1.7% to 6,281
points this week, with the sell-off gaining momentum after the index approached
its extreme target of 6,450 points, peaking at 6,436 before reversing sharply.
A fragile equilibrium held until Thursday, initially supported by optimism over
the U.S.–EU trade deal. However, this was soon overshadowed by fruitless
negotiations between Washington and Beijing. The U.S. demanded China halt purchases of Russian oil after the August 8
deadline, a request Beijing flatly rejected. Talks have
since stalled.
Another blow came from
the Federal Reserve
(Fed). Its Chair Jerome Powell
ignored U.S. president Donald Trump’s public “advice” to cut interest rates,
instead leaving them unchanged at 4.50% for the fifth consecutive meeting. Moreover, Powell adopted a notably hawkish tone on the inflationary
impact of tariffs. That said, strong earnings from Microsoft and Meta Platforms
provided some support to the market midweek.
Following the Fed’s
decision, Trump escalated pressure by raising tariffs on India and Brazil, moves
seen as targeting BRICS more broadly and indirectly pressing Russia to agree to
a ceasefire in Ukraine. At the same time, the U.S. is
trying not to derail its delicate trade truce with China. In March–April, similar trade tensions triggered a 19% plunge in the S&P 500 to 4,806, and Trump
appears determined not to repeat that scenario.
By Thursday, market sentiment was already
deteriorating. U.S. June Personal
Consumption Expenditures (PCE) inflation rose to 2.6% YoY,
up from 2.4%, reinforcing Powell’s stance on maintaining high interest rates. Trump responded with renewed criticism of the Fed Chair. Even the U.S. Treasury Secretary Scott Bessent, previously Powell’s main defender,
hinted that Powell may not complete his term, saying the issue would be
resolved before the end of 2025. Powell’s early removal
now appears increasingly likely.
The S&P 500 has declined for two
consecutive days. Investor
confidence has been shaken by the possible leadership change at the Fed, an
event that now seems to be in motion. Attention has
shifted to the upcoming July U.S. jobs report, which could shape expectations
for the Fed’s next move in September. Following Powell’s comments, the odds of a rate cut next month have
fallen sharply, from 64.5% to 41.3%. If the report shows
continued strength, it would undercut the case for a September rate cut. Wall
Street expects signs of a cooling labour market, with forecasts pointing to
106,000 new jobs, down from 147,000 previously, and unemployment rising to 4.2%
from 4.1%. We project Nonfarm Payrolls to land between 106,000 and 116,000.
However, falling jobless claims suggest underlying labour market resilience.
Given the political weight of this data, surprises and sharp market reactions
are likely.
Large investors were buying into the rally up
until Wednesday. The SPDR S&P 500 ETF Trust (SPY) reported net inflows of
$1.87 billion for the week, not including Thursday and Friday. But as the
benchmark approached 6,450 points, the rapidly shifting backdrop suggests many
may now be unwinding those positions.
Technically, the outlook for the S&P 500
has deteriorated. After reaching
the extreme target range of 6,350–6,450 points, the index has entered a reversal window expected to stay open through
the end of next week. Without a strong rebound, a
definitive sell signal may soon be confirmed.
Elsewhere, the oil market appears to be
emerging from its technically weak phase. August presents an opportunity for a
rebound. Brent crude is currently trading within the $71.00–$73.00 range. A
breakout above this zone could open the path to resistance at $81.00–$83.00.
But if prices fail to hold above $71.00, a decline toward support at
$61.00–$63.00 remains possible.
Gold continues to hold within its summer
consolidation pattern. Prices respect the key support zone at $3,230–$3,250 per
troy ounce but remain capped below $3,430–$3,450. A recent correction has brought the yellow metal back to the $3,330–$3,350 range, with the
current level at $3,294. A breakout may become possible
only by mid-August. A deeper decline would require a firm close below $3,230.
In currency markets, the U.S. Dollar has strengthened
significantly. The EURUSD dropped to 1.14070 and could decline
further if July’s NFP report surprises to the upside. However, a correction toward 1.16500–1.17500 remains likely in the near term.