Weekly Focus: Fed Choir and Disney Reporting

S&P 500 broad market index futures edged up by 0.3% to 5143 points, driven by positive expectations in the absence of major economic events this week. Investors appear to be pausing to assess their next moves in the midst of a tense market environment.

The U.S. labour market report for April fell significantly short of expectations, with Nonfarm Payrolls at 175,000 compared to the anticipated 238,000. Unexpectedly, the unemployment rate edged up to 3.9%, while average hourly earnings slowed to 0.2% MoM from March's 0.3%. The dovish message from the Federal Reserve (Fed) last week seems justified in light of this data, prompting a pronounced reaction in the U.S. debt market, with 10-year Treasuries yields dropping to 4.46% by the end of last week. Bets on interest rate cuts by the Fed in September hover around 48.8%, with little expectation for earlier cuts.

Despite the upside opportunity presented by the 1.0% jump in the S&P 500 index following the weak labour market report, investors are still pulling away from stocks. The SPDR S&P 500 ETF Trust (SPY) reported net capital outflows of $3.1 billion last week. However, the S&P 500 index has restored its upside technical formation, with 5250-5350 as the primary upside target, potentially updating recent all-time highs.

Investors may be hesitant to embrace a potential new wave of the stock rally, perhaps due to skepticism or concerns about forthcoming challenges. The continuation of net capital outflows from SPY despite the rise of the S&P 500 index would confirm this cautious sentiment.

There are no major macroeconomic releases this week. Many Fed officials would orchestrate market moments this week starting with Richmond Fed President Tom Barkin and New York Fed President John Williams on Monday. Neel Kashkari form the Minneapolis Fed will step over on Tuesday followed by Fed Governor Lisa Cook on Wednesday. The last piece of this composition will be made by Fed Governor Michele Bowman on Friday. This composition could be both hawkish to balance dovish messages last week or either neutrally dovish to highlight the message. The other core component is declining borrowing costs. Fed officials rhetoric could affect interests rates to some extent, but April inflation numbers next week will play a key role in this play. Lower inflation could send the S&P 500 index up to update its records.

Bank of England is likely to follow Fed’s dovish rhetoric on its meeting this week. Macroeconomic data that will be released is unlikely to disturb an existing market landscape. More than 80% of companies listed in the S&P 500 index have already delivered their Q1 earnings reports. In fact their profit exceeded consensus by 50%, an incredibly outstanding result. The inertia may push stocks higher. Disney (DIS) will be reporting this week.

Technical outlook for the S&P 500 index has improved after a standard correction of 5-7% and the following recovery. The index has now returned to an upside formation, with targets at 5250-5350 points. The nearest resistance is at 5140-5160 points, and the support at 5020-5060 points. The index has to surpass the resistance in order to update all-time highs. This could happen by the end of this week.

Oil prices are under pressure, breaking out to the downside of the consolidation range of $87.00-92.00 per barrel of Brent crude. Downward pressure is expected to persist until mid-May, with support at $81.00-83.00 per barrel.

Gold prices, having reached mid-term upside targets, are expected to consolidate as they hover around $2000-2100 per troy ounce, with extreme targets at $2400-2500. The nearest support is at $2290-2310, while resistance is at $2390-2410 per ounce. A breakthrough of the support may result in further correction.

The Greenback continues to lose ground after weak U.S. labour report for April and interventions by the Bank of Japan. The EURUSD is likely to continue up, but first it could retreat to 1.07200-1.07300. If the pair climbs above 1.08000-1.08300 it could potentially move higher towards 1.09300-1.10300.