S&P 500 broad market index futures are
down by 0.6% to 5,900 points. The timing of this decline suggests a potential
reversal, largely attributed to Federal Reserve (Fed) Chair Jerome Powell, who
unsettled investors with hawkish remarks last Thursday. Prior to his speech,
the SPDR S&P 500 ETF Trust (SPY) saw bold inflows totalling $5.5 billion;
however, by week’s end, this reversed into net outflows of $523 million.
Had Powell voiced concerns about the
inflationary impact of tariffs when the S&P 500 was trading below the
pivotal 5,800–5,900 range, investors might have used the dip as a buying
opportunity. Instead, issuing such comments at a critical juncture—where the
index was poised either to extend gains toward 6,150–6,250 or retreat to
5,500–5,600—was seen as ill-timed. It appears Powell’s remarks may have
inadvertently encouraged a pullback.
Further downward pressure came from Moody’s,
which downgraded the U.S. sovereign credit rating from AAA to AA1, citing
mounting national debt and a widening budget deficit. U.S. Treasury Secretary
Scott Bessent dismissed the move, calling Moody’s a “lagging indicator”.
Notably, the other two major agencies—S&P and Fitch—had already issued
similar downgrades in August 2011 and August 2023, respectively. The timing of
Moody’s announcement, closely following Powell’s speech, raised eyebrows.
Meanwhile, President Donald Trump renewed
calls for immediate rate cuts, but Powell appears to be pursuing an independent
course. While early attempts to remove Powell have failed, attention now turns
to the Fed, with nine officials scheduled to speak this week—most on Monday.
These speeches may shed further light on the Fed’s updated stance introduced by
Powell, and heightened market volatility should be expected.
On Thursday, the U.S. will release its May PMI
data. Wall Street anticipates signs of further cooling in economic activity—an
unfavourable development for equities. The Fed appears firmly focused on
inflation control, with less emphasis on supporting the stock market in the
short term.
From a technical viewpoint, the S&P 500’s
outlook is becoming less sustainable. Although it recently broke through the
5,800–5,900 resistance zone and is now trading at 5,885, the key test remains
whether it can hold above this range. If so, the rally could stretch toward
6,150–6,250 points. Immediate resistance is seen at 5,880–5,900, with further
resistance at 5,980–6,000. Initial support lies at 5,780–5,800; failure to hold
these levels may result in a deeper pullback to 5,500–5,600.
Brent crude oil prices recently neared the
resistance zone of $67–69 per barrel but have since retreated to $65.50 amid
encouraging progress in U.S.–Iran negotiations. Key support lies at $57–59.
However, continued momentum in U.S.–China trade talks may underpin oil, with
potential for a rally toward $75–77 in the coming months.
Gold prices have found unexpected support
following Moody’s U.S. rating downgrade. The metal rebounded to trade at $3,240
per troy ounce, within the $3,230–3,250 resistance range. If gold fails to
break above $3,250, a retreat to the $3,030–3,050 support zone becomes likely.
The U.S. Dollar is under pressure following
the Moody’s downgrade. The EUR/USD pair has surged above key resistance at
1.12000, reaching 1.12660. A close above 1.12700 would confirm a bullish
reversal, with upside targets at 1.13500–1.13700. Despite prior downside
momentum, the euro now appears poised for a broader recovery.