The S&P 500 broad market index futures are
up by 0.3% to 5140 points on Monday, indicating a recovery after a 0.7% slump
on Friday. This decline marked the second consecutive week of negative
performance for the index, but it appears more like a minor correction ahead of
an important event.
Investors are eagerly awaiting the Federal
Reserve (Fed) decision on interest rates, scheduled for Wednesday. While no
changes are expected at this meeting, all eyes are on Fed Chair Jerome Powell's
rhetoric during the subsequent press conference, as well as the dot plot
projection of FOMC members for the outlook. In December, FOMC members projected
three interest rate cuts for 2024 when headline inflation stood at 3.4% YoY.
Despite a slight decrease to 3.2% YoY in February, it may not be enough to
convince policymakers to maintain their expectations of three cuts this year.
Powell's tone could also influence market
sentiment, and he may continue with a "hawkish plateau" regarding
interest rates given ongoing strong macroeconomic data and rising inflation.
The recent surge in oil prices may further prompt the Fed to delay the first interest
rate cut until at least June. However, this scenario is uncertain, with
investors now giving it a 55.4% probability, down from 59.6% last week. The
rapid increase in U.S. 10-year Treasuries yields, reaching 4.32%, adds to the
cautious sentiment.
Investors are showing caution, with only $715
million in capital inflows to the SPDR S&P 500 ETF Trust (SPY) last week,
significantly lower than the average. This suggests a wait-and-see approach
ahead of the Fed meeting. Other central banks, including the Bank of England,
Reserve Bank of Australia, Swiss National Bank, and potentially the Bank of
Japan, will also announce interest rate decisions this week.
Some
important macroeconomic data like manufacturing and services PMI in the United
States will be released this week. There is a bulk of other information, but it
all should be interpreted correctly only after the Fed will announce its
decisions.
The S&P 500 index 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 three 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 5210 points, while support is at 5110-5130 points.
Oil prices went above
$86.00 possibly reacting to higher crude inventories in the United States and
global oil deficit in 2024 projected by International Energy Agency. Escalation
between Israel and Hezbollah in Lebanon may also play some role in rising
prices. The nearest resistance is at $87.00-92.00 per barrel, while the support
is at $81.00-83.00 per barrel.
Gold prices, having
reached mid-term upside targets at $2000-2100 per troy ounce, established a new
all-time high at $2195. Prices are retreating a little from this level. The
nearest resistance is at $2210 per ounce, while support is at $2110-2130. A
technical period favorable for downside scenarios has started. It will last by
the mid-April.
The currency market is
waiting for the Fed meeting. The EURUSD has to return above 1.09400 to continue
up. 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. Elevated volatility is expected ahead of the Fed meeting on March
19-20.