The S&P 500 broad market index added 0.3%,
trading close to 5155 points. This could be considered a moderately good result
after the benchmark lost 1.3% to 5058 points but managed to recover all losses.
The U.S. stock market was impacted by the
service sector PMI, which came out at 52.3 points, much higher than the
expected 51.3 points. Federal Reserve (Fed) Chair Jerome Powell was rather
hawkish during his testimony to Congress. Powell stated that policymakers are
still attentive to inflation risk, and he was not ready to specify when they
are going to cut interest rates, limiting himself by saying that he expects the
rates to be cut by the end of this year. It seems that they lack confidence in
curbing inflation soon. The lower-than-expected Nonfarm Payrolls number
released by the ADP supported stocks substantially; otherwise, stock indexes
were at risk of turning red.
The expected cooling of the labour market in
the United States improved fiscal conditions. Bets on Fed interest rate cuts in
May and June increased by 2.0-3.0 percentage points to 19.9% and 55.7%,
respectively, according to the CME FedWatch Tool. The U.S. 10-year Treasuries
yields fell to 4.05% from 4.18% at the beginning of the week.
Wall Street is anticipating Nonfarm Payrolls
to decrease to 198,000 in February from 353,000 in January. Unemployment is
expected to remain unchanged at 3.7%, while average hourly earnings are
expected to slow down to 0.2% MoM compared to 0.6% in the previous month. Our
statistical modelling suggests that Nonfarm Payrolls could be a little lower –
at 176,000-198,000, while unemployment holds at 3.7%. Unfortunately, the labour
market has proven to be highly volatile in recent months, so any forecast
should be considered with great caution until we see a steady cooling of the
economy.
The next week will be a blackout for the Fed
members ahead of the meeting on March 19-20. Investors will monitor February
inflation numbers and U.S. consumer sector sentiment to get the last pieces of
the monetary policy puzzle.
The S&P 500 has exceeded the final upside
target zone at 4850-4950 points and missed potential correction opportunities.
Betting on a rally before a correction could be risky, with reversal patterns
indicating a standard correction of 5-7% within the next four weeks. The
starting point of this correction is yet to be defined, but potential downside
opportunities may emerge by the end of March. The nearest resistance is at 5190
points, while support is at 5090-5110 points.
Oil prices have come to a standstill after
breaking through the resistance at $81.00-83.00 per barrel for Brent crude.
OPEC+ has extended 2.2 million bpd production cuts into Q2 2024. Russia has
also announced voluntary production cuts of 471,000 bpd on top of it. This
pushed prices up to $85.10 per barrel, but they suddenly rolled back to $83.00.
After breaking through the resistance, oil prices opened a path to the next
target at $87.00-92.00 per barrel. A ceasefire in the Gaza strip could
potentially harm this rise, but it seems that peace talks have stalled.
Gold prices, having reached mid-term upside
targets at $2000-2100 per troy ounce, established a new all-time high at $2164.
The nearest resistance is at $2200 per ounce, while support is at $2010-2030. A
technical period favourable for downside scenarios will start in mid-March.
The currency market is excited about the start
of another wave of the downside correction for the Dollar. The EURUSD rose to
1.09400 and may continue upward. 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.