This trading week ends on a risk off mode that finally has been established. Thus, we may expect developing trend in declining stock indices and crude oil together with strengthening U.S. Dollar to escalate.
However, these trends are developing on a controversial macroeconomic background and debt market rebound. The macroeconomic data published this week turned to be quite positive. The business activity in Eurozone, the United States and United Kingdom continues to rise above neutral level. On one hand, it may be logical given seasonal economic recovery. But such sentiment is not confirmed by other actual economic data such as retail sales that are dropping both in annual and monthly figures.
We should understand that we are looking at the developed countries with high share of their GDP generated by local consumption. So, either retail sales figures are wrong or business positive sentiment is too exaggerated.
The second option is more likely since retail sales are the actual statistical data, but PMIs are measuring the activity level of purchasing managers and are based on a survey. Managers are looking optimistic on the situation with lockdowns and delayed demand.
So, it is too early to say that the economy in the developed countries is on a steady recovery path. However, we may see a formal economic growth, but we should be waiting for additional confirmation in sales.
Yields on the U.S. debt market were declining throughout this week, from a record of 1.75% on 10-year Treasuries to 1.59%. Investors are starting to buy “cheap” U.S. debt. Even Financial Times wrote over the capital spillover from equities to bonds as money managers rebalanced their portfolios close to the end of the quarter. On the other hand, the saga of rising yields is far from being over and may soon return. It may coincide with the correction in the stock markets when money managers would start buying “cheap” stocks instead of bonds.
Despite the macroeconomic positive sentiment stock markets are at the crossroads. The broad market S&P 500 index in this situation is set to drop to its weekly support levels at 3790 points. More severe decline may be expected next week.
Oil market may suffer given a strong correlation with stocks. The support level at $61 per barrel of Brent crude is still guarding prices from falling further, but any buy position at this level would be unwise at the moment. In case of a rapid drop in S&P500 index crude prices may slide below $61 per barrel
Nothing interesting in Gold, except maybe that Federal Reserve Chair Jerome Powell compared cryptos rather with gold assets than U.S. Dollar. Gold is still trading in a range of $1700-1750 per troy ounce. And that seems oddly as debts yield are down, North Korea is escalating geopolitical tensions by launching new ballistic missiles. So, may be gold is not an attractive asset now as investors prefer to buy Treasuries.
The Greenback continues to strengthening breaking resistance levels in major currencies. The EURUSD started its descend to 1.15300, while the GBPUSD is falling towards the support at 1.35100.
The USDJPY is still in a long reverse pattern deciding the resistance level it would decline from. The pair may still fall from the current levels at 109.00-109.50, or perform an upward spike to 110.50 and then drop to 106.50.